How the Fair Payment Code is changing UK B2B payment culture
By InvoiceReminder Editorial Team · Published 6th August 2026
Dealing with late payments from large corporate clients is a frustrating, and all-too-common, reality for UK small businesses. It’s a dynamic where the small supplier often feels powerless. In response to this, several initiatives have emerged, including the Fair Payment Code. This article demystifies the Code, explains what it actually requires, and contrasts it with your legally-binding rights to get paid on time.
The Enduring Challenge of Late Payments
For a small or medium-sized enterprise (SME), consistent cash flow is the lifeblood of the business. When large customers delay payments, it’s not just an administrative headache; it can stall growth, force you to take out expensive credit, and, in the worst cases, threaten your company’s survival.
Large businesses often leverage their significant buying power to impose lengthy payment terms—60, 90, or even 120 days—as standard. They may also have complex, bureaucratic accounts payable departments where invoices can get "lost" or stuck in approval chains for weeks. It’s this systemic imbalance that initiatives like the Fair Payment Code aim to address.
What is the Fair Payment Code?
The Fair Payment Code is a voluntary set of commitments started by a group of leading UK businesses. It is not a law or a government regulation. Instead, it’s a public pledge by its signatories to champion a culture of fair payment practices, particularly towards their smaller suppliers.
The core idea is for large, influential companies to lead by example. By committing to better payment standards, they aim to create a ripple effect throughout the UK's B2B economy. The Code is built on the belief that paying suppliers promptly and fairly is not just good ethics, but good business.
The Core Commitments of the Fair Payment Code
While the Code is aspirational, its signatories pledge to uphold several key principles in their dealings with suppliers.
1. A Commitment to Faster Payments
The headline commitment of the Fair Payment Code is the goal to pay small and medium-sized suppliers within 30 days. This stands in stark contrast to the 60-day-plus terms that have become common practice in many industries. For a small business, halving the wait time for payment can have a transformative impact on cash flow and financial planning.
2. Transparency in Payment Processes
Signatories commit to being clear and transparent about their payment procedures. This means providing suppliers with:
- Clear instructions on how to submit an invoice correctly (e.g., required Purchase Order numbers, specific email addresses).
- A clear point of contact within the accounts payable department to resolve queries.
- A straightforward and timely process for handling any invoice disputes.
The goal is to eliminate the "black hole" where invoices disappear without a trace, leaving suppliers guessing about their payment status.
3. Leading by Example and Championing the Cause
The Fair Payment Code is fundamentally about leadership. Signatories are expected to not only adhere to the principles themselves but also to champion the cause of fair payment within their industries and supply chains. They are encouraged to promote the Code and its values, acting as ambassadors for a better payment culture.
Fair Payment Code vs. Prompt Payment Code: What's the Difference?
It’s easy to confuse the Fair Payment Code with the more widely known Prompt Payment Code (PPC). While they share a similar goal, they are distinct initiatives with different levels of oversight and commitment. The Prompt Payment Code is a more formal, government-backed scheme administered by the office of the Small Business Commissioner.
Understanding the difference is crucial for any SME chasing an invoice.
| Feature | Fair Payment Code | Prompt Payment Code (PPC) |
|---|---|---|
| Nature | A voluntary, aspirational pledge started by a group of large UK businesses. | A formal code of practice backed by the UK government and administered by the Small Business Commissioner. |
| Core Commitment | A general goal to pay smaller suppliers within 30 days and to be transparent. | A specific, measurable commitment to pay 95% of invoices from small businesses (fewer than 50 employees) within 30 days and 95% of all invoices within 60 days. |
| Enforcement | None. Relies on public image and peer pressure. | The Small Business Commissioner can investigate complaints against signatories and has the power to suspend or remove non-compliant companies from the code. |
| Who Can Sign? | Initially targeted at large FTSE-listed corporations. | Open to businesses of all sizes, and many SMEs sign it to show their own commitment to good practice. |
| Checking Signatories | No official, central, publicly searchable list. | A full, searchable list of signatories is maintained on the Small Business Commissioner’s website. |
In short, a company’s signature on the Prompt Payment Code carries more weight. If a PPC signatory is paying you late, you have a clear standard to hold them to and a formal body (the Small Business Commissioner) to whom you can complain. The Fair Payment Code, while well-intentioned, offers no such recourse.
The Reality Check: Your Legal Rights Are Stronger Than Any Code
Voluntary codes are a positive step, but they are not a substitute for the law. When you are facing a seriously overdue invoice, your most powerful tools are the statutory rights granted to you by UK legislation.
For B2B transactions, this is governed primarily by The Late Payment of Commercial Debts (Interest) Act 1998. This law gives you a legal, automatic right to claim interest and fixed compensation when a commercial invoice is not paid on time. This is not optional for your client; it is the law.
Calculating Statutory Late Payment Interest
You are entitled to charge statutory interest on the overdue amount. The rate is fixed by law and is deliberately set high to act as a deterrent.
The formula is: The Bank of England base rate + 8%.
This is calculated as simple interest, not compound. To work out how much you can claim:
- Find the current Bank of England base rate. You can do this by searching online for "Bank of England base rate". Let's say, for example, it is 5.25%.
- Add 8% to this rate. In our example, this gives a statutory interest rate of 13.25% per annum.
- Calculate the daily interest:
(Invoice Total x 13.25%) / 365. - Multiply the daily interest by the number of days the payment is overdue.
Example:
- Invoice Amount: £2,000
- Payment Due: 1st May
- Payment Received: 30th June (60 days late)
- Statutory Interest Rate (example): 13.25%
Daily interest = (£2,000 x 0.1325) / 365 = £0.726 Total interest owed = £0.726 x 60 days = £43.56
You can send a separate invoice for this interest charge.
Claiming Fixed Compensation
On top of the interest, the Act allows you to claim a one-off fixed compensation fee for every single invoice that is paid late. The amount depends on the size of the debt and is intended to cover the administrative costs of chasing the payment.
The compensation bands are set by law:
| Debt Amount (per invoice) | Compensation You Can Claim |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
This is not a choice; it is your legal right. For the £2,000 invoice in our example above, you could claim £70 in compensation in addition to the £43.56 in interest.
This is general guidance and not legal advice. The right to claim statutory interest and compensation applies to most UK B2B contracts unless your agreed terms already include a different, "substantial remedy" for late payment, which is rare in standard supplier agreements.
Practical Steps When a Large Client Pays Late
Knowing your rights is one thing; enforcing them is another. Here is a practical, escalating process for dealing with a late-paying large client.
Check Your Paperwork: Before you chase, double-check that your invoice was correct. Did it include the right Purchase Order (PO) number? Was it sent to the correct email address or portal? Any error on your part will be used to justify a delay.
Begin Chasing Immediately: Do not feel awkward about chasing on the day an invoice becomes overdue. A polite, professional email is perfectly acceptable. "Hi [Contact Name], Just a friendly reminder that invoice #123 was due for payment yesterday. Could you please provide an update on its status? Thanks."
Automate the Follow-Up Process: Manually tracking and chasing every overdue invoice is a huge drain on time and mental energy. It’s easy to let things slip, especially when you’re busy. This is where automation becomes invaluable. Tools like InvoiceReminder connect directly to your accounting software (like Xero, QuickBooks, Sage, or FreeAgent) and automatically send out a sequence of chasing emails based on your rules. You can set a friendly reminder at day 1, a firmer one at day 7, and a final notice at day 14, all without lifting a finger.
Reference the Prompt Payment Code (If Applicable): If you have checked the public register and know your client is a signatory to the PPC, you can politely reference it in your communications. For example: "As a signatory to the Prompt Payment Code, we know you share our commitment to timely payments and would appreciate you looking into overdue invoice #123 as a matter of urgency."
Issue an Invoice for Statutory Interest and Compensation: If polite reminders are being ignored, it’s time to escalate. Formally notify your client in writing that you are now exercising your statutory right to claim late payment interest and compensation. Issue a new, separate invoice for these charges. This action often gets a response as it signals you are serious and know your rights.
Lodge a Complaint with the Small Business Commissioner: If the client is a PPC signatory and remains unresponsive, you can file a formal complaint with the Small Business Commissioner. Their office can provide information, check on the status of your payment, and make non-binding recommendations. This is a free and powerful tool for SMEs.
Consider a Letter Before Action: As a final step before legal proceedings, you or a solicitor can send a "Letter Before Action". This formal letter states your claim (including interest and compensation) and warns that you will begin a court claim via Money Claim Online if the full amount is not paid within a specified period (e.g., 14 days). Often, the serious threat of legal action is enough to secure payment.
Frequently asked questions
What's the main difference between the Fair Payment Code and the Prompt Payment Code?
The Fair Payment Code is a voluntary, aspirational pledge by a group of large companies with no formal enforcement. The Prompt Payment Code (PPC) is a more formal, government-backed code with specific payment targets (e.g., pay 95% of small business invoices in 30 days) and is overseen by the Small Business Commissioner, who can remove non-compliant signatories.
Can I legally charge interest on a late invoice in the UK?
Yes. For business-to-business debts, The Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to claim interest at a rate of 8% plus the Bank of England's base rate. This applies automatically unless your contract specifies an alternative, substantial remedy.
How do I know if a company has signed the Prompt Payment Code?
You can check the official, publicly searchable list of signatories on the Small Business Commissioner's website. This is the only definitive source for checking if a company is currently signed up to the PPC.
Does the Fair Payment Code apply to my small business?
The code is a commitment by large businesses to their smaller suppliers. As an SME, you are the intended beneficiary of their pledge. You do not sign the Fair Payment Code yourself; you hold its large corporate signatories to their promise.
How much compensation can I claim for a late payment?
For each B2B invoice that is paid late, you can claim a fixed sum in addition to interest. This is £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.
Is it worth joining the Prompt Payment Code as an SME?
Yes, many SMEs choose to become signatories. It costs nothing to join and signals to both your customers and your own suppliers that you are committed to fair and timely payment practices, which can enhance your professional reputation.
Take the manual work out of credit control
Manually chasing invoices, especially from large clients with complex payment systems, is a thankless task that drains your time and energy. InvoiceReminder helps UK freelancers, small businesses, and accountants automate their credit control. It connects with Xero, FreeAgent, QuickBooks, and Sage to send scheduled reminder emails that follow your rules, from gentle nudges to final notices. This helps you get paid faster without the manual effort. The core email reminder service is currently available at no cost, with no card required to sign up. InvoiceReminder is built by the team behind WeCovr, which has arranged over 1,000,000 insurance policies in the UK and is authorised and regulated by the Financial Conduct Authority.