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Action on Construction Companies who fall foul of Prompt Payment Code

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This April we saw an unprecedented move by the Chartered Institute of Credit Management (CICM) to take action on companies who fail to meet the standard of the Prompt Payment Code (PPC) which has seen 17 companies removed or suspended from the Code during the past quarter for failing to meet the majority of their payments within 60 days of an invoice being issued.The published list holds the names of several major construction companies reflecting badly on our industry but not unsurprisingly given that construction companies write-off thousands of pounds because of bad debt caused by late and non-payment each year. According to a study carried out by specialist financial services provider Bibby Financial Services (BFS) and industry experts, The Vinden Partnership (TVP) ‘Sub-Contracting Growth’ 2018 reveals that three-fifths of subcontractors working in the construction industry (60%) have suffered from bad debt in the last 12 months, with the average firm writing-off £16,149 each year[1].

“The move by the CICM is welcome to the industry as it recognises the struggles companies face when it comes to late payment, particularly for the construction industry. As a company, we are proud to be an approved signatory of the Prompt Payment Code. For over 25 years we have been supporting the construction industry with tools and information to increase their protection from bad debt as well as developing services to assist with the collection of overdue invoices. We know first-hand the impact late payment has on our members. The knock-on effect from the top of the chain to the bottom can be devastating,” says Emma Miller, Company Director Top Service. 

What is the Prompt Payment Code (PPC)?

The Prompt Payment Code (PPC) is administered by the Chartered Institute of Credit Management on behalf of the Department for Business, Energy and Industrial Strategy (BEIS). Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board. The Code covers prompt payment, as well as wider payment procedures. 

Member Benefits

All signatories of the Prompt Payment Code (PPC) are eligible for a 25% discount on our subscription fee.

Are you claiming everything you are entitled to for bad debts?

Where an invoice is not paid or is paid late, the Late Payment of Commercial Debts (Interest) Act 1998 allows you to claim interest and compensation and the Late Payment of Commercial Debts Regulations 2013 allows you to claim recovery charges above the compensation amount awarded. ” 

 “Interest claims for non-payment are split into two categories, contractual and statutory. Contractual interest must be stated in the terms & conditions and / or contract and agreed with the customer before the product / service is provided. 

The majority of construction businesses who are providing trade credit to customers will turn to the statutory interest legislation to ensure they are being compensated for late payment. 

The statutory legislation (Late Payment of Commercial Debts (Interest) Act 1998) allows for interest to be claimed at 8% above base rate and also a compensation claim of either £40, £70 or £100.00 depending on the value of the debt. 

Amount of debtWhat you can charge
Up to £999.99£40
£1,000 to £9,999.99£70
£10,000 or more£100

The statutory legislation can be applied to business debts that are ‘late’ the Government outlines ‘late’ as being 30 days after either the customer receives the invoice, or you deliver the goods/provide the service (if this is later than the customer receiving the invoice). Unless you have agreed longer terms to pay with your customer. In these cases, the debt would be ‘late’ after those agreed terms have passed.

In terms of raising invoices for these late payment charges, there is no need. You claim your interest and compensation on the gross amount of the invoice. Your customer should treat the payment of interest to you as they would bank charges. There is no need to raise a separate invoice for these charges. 

To enable your customer to process payments for interest and to ensure you are covering any required pre-action protocol should the need for legal action be necessary it is advisable to confirm you claim for interest within your chasing letters. If you are passing your case to a 3rd party for recovery, then your nominated 3rd party should do this for you. 

Can you pass the debt collection cost onto your customer? 

Any claims for your debt collection costs not claimed under the statutory legislation should be agreed within your terms & conditions and / or contract with your customer.  Under the Late Payment of Commercial Debts (Interest) Act 1998 you can claim a compensation figure, depending on the value of the debt you are collecting:

Amount of debtWhat you can charge
Up to £999.99£40
£1,000 to £9,999.99£70
£10,000 or more£100

If your collections costs are more than the compensation figure you are claiming, you can claim the surplus under the late Payment of Commercial Debts regulations 2013. 

To help improve your chances of a successful collection for interest and / or charges and to meet any pre-action protocol required for legal action you should ensure any claims for interest, compensation and charges are ‘reasonable”.

For more information on debt prevention and recovercontact our expert team.

[1]                                 The Vinden Partnership (TVP) ‘Sub-Contracting Growth’ 2018