Fair Payment Code: How Government Action Is Supporting SMEs Against Late Payments
Late payments remain one of the most damaging pressures on small businesses in the UK. FSB research found that 70% of small businesses experienced late payments in Q1 2025, with FSB estimating that 50,000 business closures a year could be avoided if invoices were paid on time.
A 2025 study commissioned by the Department for Business and Trade found that late payments cost the UK economy almost £11 billion per year, with 14,000 businesses closing annually as a direct result. That is 38 businesses every single day.
Source: Department for Business and Trade / London Economics, July 2025
In response, the UK government has introduced a series of measures to tackle the problem, including the launch of the Fair Payment Code in late 2024. This guide explains what the Fair Payment Code is, how it works, and what it means for SMEs supplying the public sector.
What Is the Fair Payment Code?
The Fair Payment Code is a voluntary code of practice that replaced the Prompt Payment Code, which had been in place since 2008. Delivered by the Small Business Commissioner, it establishes clear expectations for when and how suppliers, particularly SMEs, should be paid by larger organisations.
Businesses that sign up to the code commit publicly to paying their suppliers on time, with performance verified against defined standards. The first cohort of awardees was announced in January 2025.
LPA holds Fair Payment Code Gold status, recognising our commitment to prompt payment in our own supplier relationships.
The Scope of the Problem
FSB research shows that 70% of small businesses experienced late payments in Q1 2025. The same Department for Business and Trade study found that UK businesses collectively spend 133 million hours annually chasing overdue invoices. For SMEs, the consequences go beyond cash flow disruption: late payments restrict hiring, delay investment, and in the most serious cases, force closure.
Government Initiatives to Combat Late Payments
Alongside the Fair Payment Code, the government has introduced a broader package of measures aimed at changing payment culture and holding larger businesses accountable.
Key actions include increased transparency requirements, with businesses encouraged to disclose their payment terms publicly so suppliers can understand what to expect. Stricter compliance is also being pursued, with larger companies that fail to meet the code's standards facing greater scrutiny. A government consultation on further legislative measures ran through late 2025, with the government response published in March 2026 confirming incoming legislation described as the most significant reform in over 25 years.
The Fair Payment Code Award Scheme
A central feature of the code is a tiered award scheme that publicly recognises companies with strong payment practices.
Public recognition creates a meaningful reputational incentive for larger organisations to improve their payment performance, and gives SMEs a clearer picture of which clients are likely to pay on time.
Your Statutory Entitlement Where the Code Falls Short
The Fair Payment Code improves payment culture, but it is voluntary. Where public sector clients still pay outside the 30-day statutory window, suppliers have a legal right to compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
That entitlement includes statutory interest calculated daily at 8% above the Bank of England base rate, plus fixed compensation of £40, £70, or £100 per overdue invoice. Critically, the right survives the payment itself. If a public sector client paid you late at any point in the last six years (or five years in Scotland), you may have a live entitlement you have not yet acted on. Find out what a late payment compensation claim involves
Your entitlement is also time-limited. Find out how long you have to act
How LPA Can Help
LPA buys statutory late payment rights outright from businesses that have supplied the public sector. We pay a fixed, guaranteed sum on completion and pursue the claim independently. Your involvement ends at the point of payment.
Step 1: Tell us your company details. That's all we need to get started. (Takes minutes)
Step 2: We check our records to assess whether you have a claim. (No input required from you)
Step 3: If you have a claim, we offer you a fixed, guaranteed purchase price. (Fixed amount, agreed upfront)
Step 4: We send our standard-form assignment documents for signature and ask you to confirm your bank details. (Straightforward documentation)
Step 5: Once in receipt of the signed documents and bank details, we make payment within 24 hours and your involvement is over. We then take full responsibility for the claims. (Immediate payment, zero ongoing obligations)
For further detail on the process and eligibility, visit our Business FAQs page.
Am I eligible to claim?Frequently Asked Questions
What is the Fair Payment Code?
The Fair Payment Code is a voluntary code of practice delivered by the Small Business Commissioner. It establishes standards for when and how larger organisations pay their suppliers, particularly SMEs, and awards Gold, Silver, and Bronze status based on payment performance.
What replaced the Prompt Payment Code?
The Fair Payment Code replaced the Prompt Payment Code, which had been in place since 2008. The new code launched in late 2024 with the first cohort of awardees announced in January 2025.
Who awards the Fair Payment Code?
The Fair Payment Code is delivered by the Small Business Commissioner, an independent public body appointed by the UK government.
Does the Fair Payment Code mean I cannot claim late payment compensation?
No. The Fair Payment Code is voluntary and does not affect your statutory entitlement under the Late Payment of Commercial Debts (Interest) Act 1998. Where a public sector client has paid outside the 30-day statutory window, your right to claim compensation and interest remains fully intact.
How does LPA relate to the Fair Payment Code?
LPA holds Fair Payment Code Gold status, recognising our commitment to paying our own suppliers promptly. We also help businesses that have received late payments from the public sector turn their statutory entitlement into an immediate, guaranteed payment.
Am I eligible to claim?
