New Prompt Payment Standards from April 2024
As you may be aware, the Autumn Statement was announced last week and techUK has analysed what it means for the tech sector.
One area of impact is the new prompt payment standards expected from 1 April 2024.
From 1 April 2024, firms bidding for large government contracts (over £5M) will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years. Any company which does not meet this measure will fail during the selection process. Bidders for government contracts will also be required to meet the existing requirement to pay at least 90% of invoices within 30 days.
This change is especially important for SMEs considering one of the key challenges facing SMEs is the cash-flow implications of late payments. Prompt payment helps create a resilient supply chain for government contractors by maintaining strong cash flow, as well as supporting small businesses and the wider economy.
Furthermore, by improving payment times, bidders on government contracts will build better relationships with their own suppliers and create more resilient supply chains by ensuring each tier of the supply chain has access to the necessary liquidity.
On top of this, when the Procurement Act 2023 comes into force, this requirement will apply to all public sector contracts, as well as any sub-contracts substantially tied to providing goods and services to the public sector. This reinforces the government’s ongoing commitment to supporting small businesses and could boost the economy by £2.5 billion annually.
More information has been provided in Procurement Policy Note (PPN 10/23) and its guidance document.
It is equally important however, that government buyers are also prompt in paying their suppliers and are held to their policy to pay all undisputed and valid invoices within 30 days. The Cabinet Office runs the government’s Public Procurement Review Service which enables suppliers to report poor procurement practice, including instances of late or unfair payment, in public sector contracts.