The Know-it Blog

The Know-it Blog

The Know-it team

Dec 29, 2020

Prompt Payment Law: What Does it Mean for Your Business?

Prompt Payment Law: What Does it Mean for Your Business?

New changes have come into place in April 2024, with updated standards for Prompt Payments being introduced.  As of April 1st, 2024, there are significant changes for big businesses bidding for large government contracts.  The Prompt Payment Law brings significant changes that will impact businesses across the country, so we’ve broken down the details to make sure you understand what this means for your business.

Since 2019, there have been conditions in place for suppliers who sell goods and services to government departments which are above £5 million per year.  This month, however, these conditions have been tightened, making sure that large businesses entering a supply contract with the government have evidence that they pay their invoices promptly.

The Prompt Payment Law is designed to address the issue of late payments, which have long been a challenge for small and medium-sized enterprises (SMEs) in the UK.  From April 1st, large firms who are bidding for government contracts over £5 million will have to prove that they pay their invoices within an average of 55 days, and this will be tightened to 45 days by the following year.  If businesses cannot prove that they pay invoices promptly, they will fail the selection process. This new law will be an addition to the existing requirement of paying at least 90% of invoices within 30 days. 

Although this new law only directly affects large scale businesses, SMEs should see a positive result through the supply chain. One of the main challenges facing SMEs is cashflow issues that occur due to late payments.  This change should therefore support small businesses and the wider economy as the positive changes trickle down through the supply chain. Smaller suppliers can expect improved financial stability, reduced dependency on credit, and increased confidence in conducting business with larger counterparts.  By addressing late payments and promoting timely settlements, small businesses can better manage their cash flow, invest in growth initiatives, and foster a more resilient operational framework.

The introduction of the Prompt Payment Law in the UK represents a significant step towards fostering fair and transparent payment practices within the business community. By promoting prompt settlement of invoices and enhancing accountability, the law seeks to create a more inclusive and supportive environment for businesses of all sizes.

At Know-it, our platform uses automation to support small businesses with their credit control process.  This makes chasing payments more efficient and takes away the stress involved for a small business.  Our mission is to simplify credit management.  Know-it enables you to credit check and monitor, chase for payment and collect overdue invoices using one simple platform. 

Interested to try-it?  Sign up here for a 30-day free trial of Know-it.

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