Insights, Accountancy

What the strengthening of the Prompt Payment Code means for accountants and their clients

Modulr By Modulr on 31 March 2021   •   6 mins read
<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >What the strengthening of the Prompt Payment Code means for accountants and their clients</span>

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Running out of cash is one of the most common reasons for small businesses going bust, and late payments is a significant contributor to this. If companies don’t get their invoices paid on time, this puts a severe strain on their cash flow and makes it harder for them to have sufficient funds in place to pay their suppliers.

Accountants play a vital role in helping their clients stay afloat by providing them with regular cash flow forecasts and in some instances optimising the payment of their suppliers. This issue has been particularly heightened during the pandemic, with 67% accountants citing cash flow as their biggest concern for SMEs.

Late payments have been on the agenda of policymakers for a few years, with the government creating the post of the Small Business Commissioner (tasked explicitly with addressing late payments) and adopting the Prompt Payment Code (PPC). The first iteration of the PPC, introduced in 2017, encouraged larger businesses who signed up to the code to commit to paying their suppliers within 60 days.

The scheme has been a success to the extent that around 3,000 companies have signed up. However, there have still been many complaints from SMEs about not getting paid after 60 days. It is currently estimated that £23bn of invoices are paid late across Britain.

However, in January it was announced that the PPC is being overhauled, with new reforms including having to pay suppliers within 30 days and the requirement for the finance directors or CEOs of participating businesses to be personally responsible for implementing the code. In addition, suppliers are now also able to charge interest on late payments from these customers.

Accountants should respond to these changes by working with their clients to communicate the new reforms, allow them to consider whether to sign up to the code voluntarily and where necessary help them comply by optimising their cash flow with Faster Payments and forward-looking cash flow statements.


Communicate PPC changes

In the first instance, accountants should communicate the incoming changes to their clients. This should cover informing clients who are already signed up to the code so that they can continue to comply, alongside their wider client base who may wish to sign up.

Accountants should inform their clients both via email and when they next catch up virtually. Discussing this individually with clients is a bespoke approach which will allow them to know how/whether changes specifically apply to them and where relevant what actions will need to be taken.

This also creates the opportunity to cross-sell other services that may help them comply, such as cash flow forecasting and payments as a service.


Ask clients to consider signing up to the Good Business Charter

While the PPC only applies to larger companies, smaller businesses can sign up to the Good Business Charter, a charity which promotes responsible business practices and incorporates the code.

Prompt payment is one of the organisation’s ten key components, alongside the likes of the real living wage, diversity and inclusion, and environmental responsibility.

Accountants should ask smaller clients to consider signing up to PPC via the Good Business Charter based on the fact that paying suppliers on time is positive for society and ensures that supply chains can continue uninterrupted. This will be particularly relevant for businesses that rely on suppliers to procure specialist parts they may not be able to source elsewhere.

By signing up to the PPC through the Good Business Charter clients will be able to promote their inclusion on their websites and social media. The positive associations can help them attract new staff and customers, and mark them out as attractive businesses to work with for small suppliers.


Prepare cash flow forecasts

Clients signing up to PPC will need extra support in planning and monitoring their cash positions to ensure they can pay all of their suppliers on time, and still have enough cash in the bank.

Accountants should offer these clients cash flow forecasting services to give them extra visibility on their short and medium-term cash positions. At a minimum, these should be provided to clients once a month in line with management accounts.

Alternatively, incorporating a cloud-based cash flow tool (such as Fluidly, Satago or Futrli) will connect to core accounting packages to give a continuous real-time view of cash. These tools require significantly less manual input from accountants than Excel or Google Docs and once set up, require minimal time to maintain.


Offer payments as a service

A practical and profitable way for accountants to help comply with PPC is by incorporating payments as a service, with all suppliers being paid by the Faster Payments network.

Utilising a tool such as Modulr’s Accountancy Payments Dashboard can allow accountants to easily manage and reconcile client-supplier payments, with Faster Payments technology clearing and completing transactions within a few seconds of being actioned.

This can be particularly powerful when coupled with cash flow forecasting services as bank payments can be automatically reconciled back to accounting software, ensuring that clients' cash balances are up to date. This also saves accountants time because they do not need to reconcile these transactions manually, and they can spend this saved time on higher-value work.

The speed of the Faster Payments network means that clients can pay their suppliers on the exact day invoices are due, without needing to put unnecessary strain on their cash position by paying them any earlier.

While not all clients will have to adopt PPC, its overhaul suggests that policymakers are determined to finally solve the issue of late payments. However, paying suppliers on time can have benefits for accountants and businesses as well being beneficial to the wider SME economy.


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