Government’s 55-day Average Payment Rule Comes Into Force | RedSky

Government’s 55-day Average Payment Rule Comes Into Force

Late payments have long plagued the construction and public sector industries, causing cash flow issues and financial strain for businesses. The UK government has introduced the 55-day Average Payment Rule to address this, mandating timely payments to suppliers and contractors.

From 1st April 2024, businesses bidding for government contracts valued over £5 million must ensure they pay 95% of undisputed invoices within an average of 55 calendar days, or they will lose eligibility to bid for major projects.

What is the Prompt Payment Policy?

The Prompt Payment Policy is a set of guidelines established by the UK government to ensure that businesses, especially those bidding for public sector contracts, submit timely payments.

This policy was introduced to mitigate cash flow issues and financial strain caused by late payments, a significant problem in various industries, including construction.

Key Elements of the Prompt Payment Policy:

  • Payment Timeline: Businesses must pay 95% of undisputed invoices within an average of 55 calendar days. The average payment period across all invoices must not exceed 55 days​.
  • Replacement of Previous Targets: This new rule replaces the target of paying 85% of valid invoices within 60 days during one of two previous six-month reporting periods.
  • Future Reductions: Starting from April 2025, the payment period will decrease to 45 days and 30 days in subsequent years​​.
  • Application to Large Contracts: The new rules apply to any business bidding for government contracts valued over £5 million.

This builds on the government’s long-standing prompt payment commitment and aims to improve payment practices further, providing much-needed cash flow support for businesses, especially small and medium-sized enterprises (SMEs).

Prompt Payment Guidance for Those Supplying to Government Departments

The new regulations apply to all suppliers, including construction businesses of any size, providing goods or services to government departments and public sector bodies in England. Suppliers must demonstrate an effective payment system and adhere to the new 55-day average payment rule to qualify for public sector contracts valued over £5m.

Failure to comply with the prompt payment guidance could result in suppliers being excluded from public sector opportunities until they can demonstrate improved payment practices.

How to Demonstrate an Effective Payment System

To meet the prompt payment requirements, businesses must have robust processes for recording and tracking invoices, managing disputes, and ensuring timely payments.

RedSky customers benefit from comprehensive software solutions that streamline these processes, enabling them to demonstrate an effective payment system and maintain compliance with prompt payment regulations.

What Does the Prompt Payment Guidance Mean for You?

The new prompt payment guidance reinforces the importance of efficient invoicing and payment management. RedSky’s Automation Software helps businesses track invoices, manage disputes, and expedite payments, minimising the risk of late payments and potential penalties or exclusion from public sector opportunities.

By leveraging these solutions, businesses can improve payment performance, enhance cash flow, and position themselves as reliable and compliant partners for public sector projects.

Success stories  from customers like Portview and Watkin Jones illustrate how the adoption of our solutions has been associated with improvements in their payment practices and regulatory adherence, showcasing the use of our technology in real-world applications.

What is Included in the Procurement Act?

In addition to the prompt payment guidance, the Procurement Act introduces new regulations for public procurement, including a requirement for 30-day payment terms in all public procurement contracts from October 2024. This applies to all suppliers, including construction firms, providing goods or services to the government or public sector bodies above specified thresholds.

The Procurement Act aligns with the prompt payment guidance, reinforcing the government’s commitment to timely payments to suppliers and contractors across the public sector supply chain.

Preparing for the Procurement Act

To prepare for the Procurement Act’s 30-day payment term requirement, businesses should:

  • Review and optimise their invoicing and payment processes
  • Implement robust systems for tracking and managing invoices and payments
  • Ensure they have the necessary resources and capacity to meet the shorter payment terms
  • Engage with RedSky or other software providers to explore solutions for streamlining payment management

By taking these proactive steps, businesses can ensure they are ready to meet the new requirements and maintain a competitive edge in the industry.

Redsky Government 55-day average payment

What Does the Procurement Act Mean for You?

RedSky customers can utilise our software to help to comply with the Procurement Act’s requirements, including managing invoices, tracking payments, and ensuring adherence to the 30-day payment term for public procurement contracts from October 2024 onward.

By harnessing RedSky’s technology, you can demonstrate your commitment to efficient payment practices and compliance with industry standards, positioning your business as a preferred partner for public sector projects.

Publishing Payment Performance

Under the Reporting on Payment Practices and Performance Regulations 2017, large businesses in the UK must publish their payment performance to enhance transparency and accountability in payment practices.

Who Must Report

Large businesses must comply if they meet at least two of the following thresholds in their last two preceding financial years:

  • £36 million annual turnover
  • £18 million balance sheet total
  • 250 employees

What Must Be Reported

Businesses are required to report on:

  • Their payment practices and policies
  • Their performance against those policies, including the average time taken to pay invoices and the proportion of invoices paid within 30 and 60 days
  • Any late payment interest owed and paid

Where and How to Report

Reports must be published on the Government’s Payment Practices Reporting Service, a centralised platform that ensures the information is publicly accessible. Businesses must submit these reports biannually, within 30 days after the end of each six-month period.

By adhering to these reporting requirements, businesses promote fair payment practices and enhance their reputation with suppliers and partners.

Redsky Government 55-day average payment

How RedSky Supports New Procurement and Payment Regulations

RedSky’s Construction ERP empowers customers to comply with the new prompt payment guidance and Procurement Act regulations by significantly reducing average payment days and enhancing overall payment performance. By integrating seamlessly with existing systems, RedSky automates invoice registration and payment tracking, minimising manual errors and accelerating processing times.

This streamlined approach ensures timely payments to suppliers and contractors and strengthens compliance with industry regulations.

As the regulatory landscape continues to evolve, RedSky remains committed to providing cutting-edge solutions that empower businesses to thrive in a compliant and efficient environment, positioning them as reliable partners for public sector projects and ensuring a sustainable, fair, and prosperous industry for all stakeholders.

Book a Free Demo of our ERP Software and see how RedSky can transform your payment processes today.