Fair Payment Code: Explained.

  • maskobus
  • Aug 16, 2025

Understanding the Fair Payment Code: A Guide for UK Small Businesses

Late payments are a persistent problem for small businesses in the UK, impacting cash flow and overall stability. While robust financial planning is essential, understanding initiatives like the Fair Payment Code (FPC) can provide additional support.

The Fair Payment Code is a government-backed scheme designed to encourage prompt payment practices. This voluntary code recognises businesses that demonstrate a commitment to paying their suppliers on time through a tiered award system. This system allows smaller suppliers to easily identify and partner with businesses that have a proven record of timely payments. It represents one of several measures implemented by the government to empower small suppliers.

If you’re tired of chasing invoices, this guide will provide you with everything you need to know about the Fair Payment Code. We will also examine the benefits of signing up and offer advice on what steps to take if a client fails to pay on time.

What You Need to Know About the Fair Payment Code

The Fair Payment Code is a voluntary framework designed to promote fair payment practices across the UK. This government-led initiative directly addresses the issue of late payments, which can significantly impact small to medium-sized enterprises (SMEs).

Launched by the Office of the Small Business Commissioner (OSBC), the FPC replaced the Prompt Payment Code in late 2024. The former code had a similar structure but less stringent requirements.

Participation in the FPC is open to businesses of all sizes. To encourage widespread adoption and to acknowledge businesses that meet the standards, the code utilises a three-tier award system. These awards (Gold, Silver, and Bronze) are based on how quickly a business pays its suppliers. The register of award holders is publicly available, enabling small businesses to easily assess the payment reliability of potential partners.

How the Fair Payment Code Works: A Tiered System

Businesses that commit to the Fair Payment Code can apply for the award tier that best reflects their payment practices: Gold, Silver, or Bronze. Each tier has specific criteria that must be met.

  • Gold Standard: This is awarded to businesses that pay at least 95% of their invoices within 30 days.

  • Silver Standard: To achieve the Silver Standard, businesses must pay at least 95% of their invoices within 60 days. Crucially, they must also pay at least 95% of invoices to small businesses within 30 days. This tier specifically prioritises prompt payment to smaller suppliers.

  • Bronze Standard: The Bronze Standard is awarded to businesses that pay at least 95% of their invoices within 60 days.

In addition to meeting these payment timelines, businesses must adhere to the core principles of being “Clear, Fair, and Collaborative.” This means communicating transparently, establishing fair contracts, and resolving disputes quickly and efficiently.

The Fair Payment Register

All businesses that have achieved an FPC award are listed on the Fair Payment Register. This publicly accessible register allows suppliers, particularly SMEs, to easily verify a potential client’s payment history before entering into a contractual agreement. The register is maintained by the Small Business Commissioner.

The Role of the Small Business Commissioner

The Small Business Commissioner (SBC) plays a crucial role in supporting small businesses in the UK. The Commissioner heads the Office of the Small Business Commissioner (OSBC), an independent public body established by the government under the Enterprise Act 2016. The OSBC’s primary mission is to address late payment practices within the private sector.

The current Small Business Commissioner is Emma Jones CBE. She assumed the role in June 2025, succeeding Liz Barclay. Jones is also the founder of Enterprise Nation, a network that supports small businesses and entrepreneurs across the UK. She has also spearheaded various initiatives aimed at boosting innovation, including Startup Britain and the SME Digital Adoption Taskforce.

The SBC’s responsibilities include providing advice to small businesses, investigating complaints related to payment issues, and promoting a culture of prompt and fair payments through initiatives like the Fair Payment Code. While the OSBC’s recommendations are not legally binding, they serve as a powerful means of resolving payment disputes and holding larger businesses accountable for their payment behaviours.

How to Check if a Company is Signed Up

Late payments can cause significant cash flow problems for small businesses, so conducting thorough background checks is crucial. Fortunately, verifying a company’s adherence to the FPC is straightforward. Simply consult the Fair Payment Register on the Small Business Commissioner’s website.

Beyond the Fair Payment Register: Further Due Diligence

While checking the FPC register is a valuable step, it’s not the only way to safeguard your business from late payments. Comprehensive due diligence is also necessary.

Even if a potential client is not listed on the Fair Payment Register, you are still legally entitled to examine their past payment performance. Large businesses are required to publish payment reports every six months on the GOV.UK website. You can search for a company’s “Payment Practices and Performance” report to see the percentage of invoices paid within 30 and 60 days.

Word of mouth is another valuable tool for assessing potential clients. If you’re having difficulty finding a digital record of a company’s payment history, consult other small businesses in your network about their experiences. This real-world feedback can provide invaluable insights into a company’s payment standards.

The Benefits of Signing Up to the Fair Payment Code

Becoming a signatory of the Fair Payment Code is not mandatory, but it is highly recommended. Demonstrating a commitment to ethical payment practices is a reliable way to build trust and strengthen relationships with suppliers. In a competitive marketplace, being an FPC signatory can help you attract new suppliers and create more resilient supply chains.

The UK’s Late Payment Crisis: A Stark Reality

Large companies in the UK frequently fail to pay their suppliers on time, creating a ripple effect that can destabilise entire supply chains.

According to figures from the Federation of Small Businesses (FSB), 70% of small businesses experienced late payments in the first quarter of 2025. The sums involved are not insignificant, with the average UK SME with 10 or more employees being owed between £18,000 and £22,000 in outstanding invoices.

Payment delays can prevent small businesses from meeting essential expenses such as payroll, utilities, and other bills. In severe cases, they can even lead to business closures. The FSB estimates that late payments currently contribute to 50,000 business closures annually in the UK.

The impact extends beyond financial considerations. The stress of waiting for payments can take a significant emotional toll on business owners, leading to anxiety and sleepless nights. Chasing unpaid invoices and managing financial pressures can also be time-consuming, with small business owners spending up to 10% of their working time on these tasks.

The consequences of late payments extend to the wider economy. Billions of pounds are tied up in unpaid invoices, limiting business owners’ ability to grow, invest, and create jobs. Business closures caused by late payments result in an estimated £2.5 billion in losses each year.

The UK government has acknowledged the crisis and has implemented measures to protect small businesses. These include a maximum payment term of 60 days for all business transactions and legal requirements for large companies to have their payment practices scrutinised.

SME Rights Under Late Payment Legislation

The Late Payment of Commercial Debts (Interest) Act 1998 grants businesses, including SMEs, the legal right to charge interest on late payments for commercial debts.

Under this legislation, if a client pays late, an SME can charge a default interest rate of 8% above the Bank of England base rate. This is intended to compensate for the lost use of funds and cover the supplier’s borrowing costs.

SMEs are also entitled to a fixed sum to cover the internal costs of chasing the debt. This ranges from £40 for debts up to £999.99 to £100 for debts over £10,000, depending on the debt size.

While these rights aim to alleviate the financial burden on small businesses, enforcing them can be challenging. Charging interest could potentially damage future relationships with clients, leading many SMEs to absorb the financial impact themselves.

Protecting Your Business from Late-Paying Clients

Waiting for invoices to be paid can feel disempowering, but you can take steps to regain control. Here are some key strategies to maximise your chances of getting paid on time.

  • Establish Clear Payment Terms in Contracts: Your contracts should clearly define due dates, accepted payment methods, and interest rates or penalties for late payments.

  • Conduct Credit Checks: Before signing new contracts, perform a credit check to assess potential clients’ previous payment performance.

  • Request Deposits for Large Projects: Asking for upfront deposits of around 25-50% helps cover initial expenses and demonstrates a client’s commitment to paying you.

  • Offer Multiple Payment Options: Make it easy for clients to pay by offering flexible payment options such as credit cards, digital wallets, and online bank transfers.

  • Automate Invoice Reminders: Send clients automated payment reminders.

  • Use Accounting Software: Use accounting software to track invoices, monitor payments, and generate reports.

What to Do When a Client Pays Late

Even with preventative measures in place, late payments can still occur. Here are some steps you should take if a client pays late.

  • Follow Up Promptly: As soon as a client misses a payment deadline, follow up with a polite email or phone call to confirm they received the invoice.

  • Send a Reminder with Interest: If your initial reminder is ignored, send a more formal email or letter clearly stating the original due date and the new overdue total, including the statutory interest and compensation costs.

  • Contact the OSBC: If you are a small supplier waiting for a payment from a larger business, the OSBC can investigate the complaint and potentially help resolve it.

  • Consider Small Claims Court or a Debt Recovery Service: If you cannot reach a resolution, you can use a debt recovery service or take the matter to the small claims court.

  • Keep Detailed Records: Maintain detailed records of all communications with the client, as well as copies of invoices and payment agreements.

Conclusion: Taking Control of Late Payments

Late payments can be frustrating and create significant cash flow challenges, but you don’t have to accept them passively. Initiatives like the Fair Payment Code make it easier for small businesses to address the problem.

By assessing a company’s payment history before entering into agreements, you can proactively avoid unreliable partners and financial difficulties. Even with precautions, late payments can still occur. Understanding your rights under the Late Payment of Commercial Debts (Interest) Act 1998 and utilising OSBC resources are crucial. By acting promptly and leveraging these tools, you can confidently claim what is owed to you.

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