Developing supplier relationships

Payment practices can indicate how strong or weak your relationship is with your suppliers. You should agree the terms of payment at the start of all supplier contracts and commit to fair payment practice as part of fostering a good relationship with suppliers.

Impact of late payment to suppliers

The practice of delaying payments to suppliers can be harmful to your business in several ways. Potentially, it can:

• damage your business' reputation
• strain your relationship with suppliers
• lead to less favourable terms and pricing in future supplier transactions
• lead to costly late-payment charges or compensation claims
• give the impression that you are in financial difficulties
• restrict the growth of the supplier's business and the economy as a whole

Importance of paying suppliers on time

A commitment to fair payment is likely to:

• help your relationship with suppliers
• make suppliers keen to work with you
• increase suppliers' confidence in you as a business partner
• enable you to negotiate better deals
• help you avoid late-payment interest charges
• signal sound financial wellbeing

To promote fair payment practice, you should:

• agree the terms of payment from the outset
• monitor your payment system - ensure it's flexible enough to meet any different payment terms agreed with suppliers
• pay undisputed bills by their due date
• foster good relations with clients - give them names of critical payment staff and tell them how your payment system works
• agree a system for resolving any payment disputes

You could also put together a payment policy that:

• includes clear instructions on payment of bills
• can be made available to suppliers upon request

Fair Payment Code

The Fair Payment Code is designed to encourage businesses to pay their suppliers on time. The Code replaces the previous Prompt Payment Code and introduces a tiered recognition system based on payment performance.

Awards are given to businesses that meet specific payment criteria:

• Gold Award - for businesses that pay at least 95% of invoices within 30 days
• Silver Award - for businesses that pay at least 95% of invoices within 60 days, with a commitment to pay 95% of invoices to small businesses within 30 days
• Bronze Award - for businesses that pay at least 95% of invoices within 60 days

To get an award, business must also adhere to the Fair Payment Code's principles of being clear, fair, and collaborative with their suppliers.

To apply for an award, businesses must submit an application to the Fair Payment Code and reapply every two years to maintain their status. Previous signatories to the Prompt Payment Code must apply separately to join the new Fair Payment Code.

Applications for the 2025/26 awards are open now, with the next application period starting in September 2025 for the 2026/2027 awards.