Late payments are a pervasive and costly issue for small businesses. Alongside relying on a sturdy cashflow forecast, there are other steps business owners can take to address the late payment crisis, including understanding the Fair Payment Code.
The Fair Payment Code is an incentive launched by the UK government to encourage businesses to make timely payments. Its tiered award system makes it easier for small suppliers to identify businesses with proven track records of timely payments. It’s just one of a set of measures the government has rolled out to place the power back in the hands of small suppliers.
If you’re fed up with chasing invoices, this guide outlines everything you need to know about the government’s new Fair Payment Code. We also address the benefits of signing up to the voluntary code, and offer advice on what action you can take if a client pays late.
In this article, we’ll cover:
What is the Fair Payment Code?
The Fair Payment Code is a voluntary code designed to promote fair payment practices in the UK. The government-led initiative aims to crack down on the culture of late payments to small businesses, which can be a significant issue for small to medium-sized enterprises (SMES).
The FPC was launched by the Office of the Small Business Commissioner (OSBC) and officially replaced the Prompt Payment Code, a code with a similar framework but less stringent requirements, in late 2024.
Since the FPC is a voluntary code, businesses of any size can sign up for it. To encourage participation and recognise good performance, the code offers a three-tier award system, based on how quickly businesses can pay their suppliers. This public record makes it easier for small businesses to determine which partners are ethical and reliable.
How does the Fair Payment Code work?
Businesses that sign up to the Fair Payment Code can apply for the award tier that best suits them: Gold, Silver, or Bronze. Here’s a breakdown of the different tiers.
- Gold Standard: for businesses that pay at least 95% of their invoices within 30 days.
- Silver Standard: for businesses that pay at least 95% of their invoices within 60 days, with an additional requirement of paying at least 95% of invoices to small businesses within 30 days.
- Bronze Standard: for businesses that pay at least 95% of their invoices within 60 days.
In addition to meeting these payment criteria, businesses must also adhere to the core principles of being “Clear, Fair, and Collaborative” to be eligible for receiving an award. This involves transparent communication, establishing fair contracts, and resolving disputes quickly.
“The Fair Payment Code is our response to all those suppliers who begged for a more aspirational, robust and ambitious approach to changing the business-to-business payment culture in the UK. We want suppliers paid within 30 days…” – Liz Barclay, Former Small Business Commissioner
All businesses that have secured an FPC award will appear on the Fair Payment Register. This publicly available list enables suppliers, specifically small to medium-sized businesses, to easily check a potential client’s payment track record before entering into a contract.
Who is the Small Business Commissioner?
The Small Business Commissioner (SBC) is a key figure in the UK’s efforts to support the bottom lines of small businesses. The Commissioner heads the Office of the Small Business Commissioner (OSBC), an independent public body set up by the Government under the 2016 Enterprise Act to tackle late payment practices in the private sector.
The current Small Business Commissioner is Emma Jones CBE. She took over from the former Commissioner, Liz Barclay, in June 2025, and is the founder of Enterprise Nation, a network and campaigning voice that supports small businesses and entrepreneurs across the UK. Over the past two decades, Jones has also led multiple initiatives designed to ignite UK innovation, including Startup Britain and the SME Digital Adoption Taskforce.
The role of the SMC is to provide advice to small businesses, investigate complaints, and promote a culture of prompt and fair payments through initiatives like the Fair Payment Code. Though not legally binding, the OSBC’s recommendations are a powerful tool for resolving payment disputes and holding larger businesses to account for their payment practices.
How to check if a company is signed up to the Fair Payment Code
Late payments can cause substantial cash flow issues for small businesses, making background research vital. Fortunately, checking if a company is adhering to the FPC is simple; all you have to do is refer to the Fair Payment Register on the Small Business Commissioner website for the official list of signatories.
Checking clients adhere to the FBC isn’t the only way to protect your business against late payments — due diligence is also necessary.
Even if a potential client isn’t on the Fair Payment Register, you are still legally entitled to review their past payment performance. Large businesses are required to publish six-monthly payment reports on the GOV.UK website. All you have to do is search for the company’s “Payment Practices and Performance” report on the website to see what percentage of invoices are paid within 30 and 60 days.
Word of mouth is another powerful tool for vetting potential clients. If you’re struggling to find a digital trail of a company’s payment history, ask other small businesses in your network about their experiences with the company you’re considering working with. This real-world feedback can provide invaluable insight into a company’s payment standards, helping you know what to expect before you sign a contract.
On the fence about signing up yourself? Being a signatory of the Fair Payment Code isn’t mandatory, but it’s highly recommended. Demonstrating a commitment to ethical practices is a sure-fire way to gain trust and build better relationships with suppliers. In a crowded market, being an FPC signatory also helps you attract new suppliers and create stronger supply chains as a result.
What is the late payment crisis in the UK?
In the UK, large companies consistently fail to pay suppliers on time, creating a domino effect that has the power to destabilise entire supply chains.
According to data from the Federation of Small Businesses (FSB), 70% of small businesses experienced late payments in the first quarter of 2025. These cases aren’t a matter of small change either, with the average UK SME with 10 or more employees being owed between £18,000 and £22,000 in outstanding invoices.
When payments are delayed, the disruption can prevent small businesses from covering essential costs like payroll, utilities, and other bills. In severe cases, it can even force business owners to close their shutters for good, with FSB estimating that late payments currently result in 50,000 business deaths a year in the UK.
The impact isn’t just financial, either. The burden of waiting for payments takes a significant emotional toll on business owners, with the fallout from chasing unpaid invoices and managing financial pressure resulting in anxiety and sleepless nights. Dealing with payment delays can feel like a huge waste of time, too, with small business owners spending up to 10% of their working time chasing late payments.
Beyond individual businesses, the consequences of late payments can reverberate to the wider economy. With billions of pounds locked up in unpaid invoices, business owners are robbed of the opportunity to grow, invest, and create jobs. This isn’t even to mention the £2.5 billion lost to business closures triggered by late payments each year.
Fortunately, the UK government is aware of the crisis and has responded with what it deems the “most significant legislative reforms in 25 years” to protect small businesses. The initiatives, which were unveiled in 2025, plan to introduce a maximum payment term of 60 days for all business transactions, and aim to hold large companies to account by legally requiring them to have their payment practices scrutinised.
What rights do SMEs have under late payment legislation?
The Late Payment of Commercial Debts (Interest) Act 1998 gives 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 has the statutory right to charge a default interest rate of 8% plus the Bank of England base rate. This penalty is designed to compensate for the lost use of funds and cover the supplier’s cost of borrowing.
SMEs are also entitled to a fixed amount of compensation to cover the internal costs of chasing the debt. The total amount depends on the size of the debt, but ranges from £40 for debts up to £999.99 to £100 for debts over £10,000.
These rights were designed to ease the financial burden of small businesses, but it doesn’t mean the penalties are always easy to enforce. Charging interest could potentially compromise future relationships with suppliers, resulting in many SMEs absorbing the financial burden themselves.
How to protect your business from late-paying clients
Waiting on invoices can make you feel powerless, but there are steps you can take to regain control. Here are some key ways to maximise your chances of getting paid on time.
- Lay out clear payment terms in the contract: your contract should clearly specify due dates, accepted forms of payment, and interest rates or penalties for late or missed payments.
- Carry out credit checks: before you sign new contracts, we recommend performing a quick credit check to assess your potential clients’ prior payment performance.
- Ask for deposits for large projects: requesting upfront deposits of around 25-50% helps cover installation expenses and demonstrates a client’s commitment to paying you.
- Offer multiple payment options: make it easy for clients to cash up by offering flexible payment options like credit cards, digital wallets, and online bank transfers.
- Automate invoice reminders: send clients a gentle nudge with friendly automated payment reminders. Use invoice templates to avoid starting from scratch every time.
- Use accounting software: use small business accounting software to track invoices, monitor payments, and generate payment reports.
What to do if a client pays late
Unfortunately, preventative measures aren’t always enough. If a client pays you late, here are some quick actions you should take.
- Don’t be afraid to follow up: as soon as a client misses a payment deadline, chase them with a polite email or phone call to check if they received the invoice. At this stage, it could be a simple oversight.
- 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. Clearly break down the statutory interest of fixed compensation costs.
- Contact OSBC: if you’re a small supplier waiting on a payment from a larger business, the OSBC can investigate the complaint and potentially help you resolve it.
- Consider small claims court or a debt recovery service: if you’ve still failed to reach a resolution, you can use a professional debt recovery service to receive a portion of the recovered debt, or take the matter to the small claims court.
- Keep a record of everything: keep detailed records of all correspondence between you and the client. Make sure you have physical copies of invoices and payment agreements, too.
Conclusion
Late payments are frustrating and can create significant cash flow challenges, but you don’t need to take them lying down. New legislation rolled out by the UK government, such as the Fair Payment Code, has made it easier than ever for small businesses to tackle the issue head-on.
By vetting a company’s payment history before you enter into deals with them, you can proactively avoid unreliable partners and financial headaches. However, even if you take all the precautions in the book, late payment still happens. That’s why understanding your rights under the Late Payment of Commercial Debts (Interest) Act 1998, and utilising OSBC resources are crucial. By acting fast and using these tools, you can confidently claim what you are owed.
