Round One to the New and Improved Prompt Payment Code

The newly strengthened Prompt Payment Code appears to have passed its first test, reports indicate.

In January it was widely reported that drinks giant Diageo had written to suppliers to inform them that it was unilaterally increasing its credit terms to 90 days from an already generous 60 days. In the resulting outrage about a large company abusing the small businesses in its supply chain it also emerged that Diageo was a signatory to the government's Prompt Payment Code of practice.

The case highlighted that the code said nothing about paying your suppliers within a reasonable time, just paying them when you say you're going to.

Subsequent changes to the prompt payment code have set out maximum acceptable credit terms at 60 days with best practice clearly signalled as 30. In addition the government gave the Code the teeth to kick out companies that did not adhere to the guidelines. On Friday 13th March, Diageo clarified that no small or medium sized business would be asked to accept 90-day payments.

It seems like the potential embarrassment of being expelled from the Code was enough to convince Diageo to perform a U-turn and it is welcome news that the newly reconfigured Code has helped show at least one large company the reputational damage that comes with abusing smaller companies in the supply chain.