Fair Payment Code vs. Prompt Payment Policy: Understanding the Difference

Confusion between the Fair Payment Code and Prompt Payment Policy creates unnecessary complexity for finance leaders navigating compliance requirements. While both initiatives aim to improve payment practices, they serve different purposes and carry different obligations for businesses.

Understanding these distinctions helps CFOs determine which requirements apply to their organizations and plan appropriate compliance strategies.

The Fair Payment Code: Voluntary Recognition

The Fair Payment Code, launched in December 2024 by the Office of the Small Business Commissioner, operates as a voluntary recognition program. Companies apply for tiered awards based on their payment performance:

• Gold Award: Companies paying at least 95% of all invoices within 30 days
• Silver Award: Companies paying at least 95% of invoices to small businesses within 30 days, and all other suppliers within 60 days
• Bronze Award: Companies paying at least 95% of all invoices within 60 days

Awards last for two years, after which companies must reapply to maintain their status. The Code includes 333 current awardees across various sectors, with construction leading at 93 companies, followed by consultancy at 58 companies.

The Code emphasizes being "Clear, Fair and Collaborative" with suppliers. Benefits include market signaling of efficient operations, competitive advantage in securing contracts, and potential to attract quality employees who value reliable partners.

Prompt Payment Policy: Mandatory Government Requirements

The Prompt Payment Policy establishes mandatory requirements for two distinct groups:

Government Contract Suppliers

Companies bidding for central government contracts exceeding £5 million annually must demonstrate effective payment systems. From October 2025, this requires paying invoices within an average of 45 days or fewer (reduced from 55 days) while maintaining the existing requirement to pay 95% of invoices within 60 days.

Large Company Reporting

Companies meeting at least two of these criteria must publish payment performance reports twice yearly:

• Annual turnover exceeding £54 million
• Balance sheet total exceeding £27 million
• More than 250 employees

Non-compliance carries significant consequences. Government contract suppliers failing payment requirements risk exclusion from future bidding opportunities. Companies failing to publish required payment reports face potential criminal prosecution of directors, including unlimited fines.

Key Operational Differences

The programs operate on fundamentally different frameworks:

Who Needs What

Many organizations face overlapping requirements:

• Government Contractors: Must meet Prompt Payment Policy requirements for contract eligibility. Fair Payment Code participation offers additional competitive advantage in bidding processes.
• Large Private Companies: Must comply with reporting requirements under Prompt Payment Policy. Fair Payment Code awards provide market differentiation and supplier relationship benefits.
• SME Suppliers: Benefit from both programs as recipients of improved payment practices, though neither directly regulates their own payment obligations.
• Non-Qualifying Companies: May participate in Fair Payment Code for competitive advantage despite having no mandatory compliance obligations.

Technology Requirements Differ

The programs create different operational demands:

Fair Payment Code compliance requires accurate payment timing records and performance calculations for award applications. Companies need systems capable of demonstrating consistent performance across all suppliers.

Prompt Payment Policy compliance demands ongoing monitoring, reporting, and audit-ready documentation. Government contract suppliers need real-time performance tracking for spot check verification, while large companies need bi-annual reporting capabilities.

Strategic Considerations for CFOs

Finance leaders should evaluate both programs within broader compliance and competitive strategies:

• Regulatory Foundation: Ensure Prompt Payment Policy compliance first, as these requirements are mandatory with significant consequences for non-compliance.
• Competitive Enhancement: Consider Fair Payment Code participation for market positioning and supplier relationship benefits, particularly when competing for contracts where payment reliability matters.
• System Investment: Choose e-invoicing platforms that support both voluntary excellence (Code awards) and mandatory compliance (Policy requirements) to maximize technology investment value.
• Supplier Communications: Use Code participation to differentiate in supplier relationships while meeting baseline Policy obligations.

Implementation Approach

CFOs managing both requirements should prioritize systematic solutions that address underlying operational capabilities:

• Payment Performance Monitoring: Implement real-time tracking systems that provide data for both Policy compliance and Code applications.
• Automated Documentation: Ensure audit-ready records that satisfy government spot checks and support award renewal applications.
• Supplier Communication: Establish clear payment term communication that aligns with both Policy requirements and Code commitments.
• Continuous Improvement: Build capabilities that enable progression from Bronze to Silver to Gold Code awards while maintaining Policy compliance.

The distinction between voluntary recognition and mandatory compliance becomes critical as October 2025 requirements take effect. Organizations that understand these differences can make informed decisions about technology investments, operational priorities, and competitive positioning within the evolving payment landscape.

For finance leaders, the goal is not choosing between the programs but building capabilities that excel at both mandatory compliance and voluntary excellence.