Prompt invoice payments: don’t miss out on procurement

The importance of paying invoices on time has never been greater – and neither has the threshold for the prompt payment at the procurement selection stage!

Alison Walton, partner and head of procurement, provides an update on the Cabinet Office’s guidance for encouraging prompt payments in the supply chain.

A reminder

In our last prompt payment update in 2020, we discussed the, then-latest, Cabinet Office’s guidance which sought to penalise companies with a record of not paying invoices on time.

The guidance required that, from 1 April 2021, any suppliers bidding for public contracts with Central Government valued at over £5 million would be automatically excluded at the selection stage if they have a record of paying less than 85% of their suppliers within 60 days of invoice.

As anticipated, the Cabinet Office has since published further guidance which increases the prompt payment threshold bidders are required to meet to avoid being excluded from public tender opportunities.

What is the position now? 

For procurements advertised before 1 April 2024, PPN 08/21 still applies, which requires bidders to demonstrate that:

1. They have paid their suppliers in accordance with the contractual terms that the bidder applies to its supply chain
2. Overall, they are paying 95% of their invoices within 60 days when measured over a twelve-month period.

For procurements advertised on or after 1 April 2024, PPN 03/23 shall apply, which will require bidders to demonstrate that:

1. As above, they have paid their suppliers in accordance with the contractual terms that the bidder applies to its supply chain
2. Overall, they have paid at least 95% (or 90% if an action plan is provided) of their invoices within 60 days when measured over a twelve-month period
3. They are also paying all their invoices within the average payment days threshold of 55 days in at least one of the two previous six-month periods.

As before, the criteria are assessed on a pass/fail basis and if the bidder has not met one of the criteria and does not provide an explanation as to why it has not met the criteria, the bidder will be excluded from the process.

The Government has continued with its regime to clamp down on poor payment practices to ease cash flow issues and to promote growth throughout the supply chain.

There is essentially no breathing space left for bidders who do not have a regimented payment process in place. It is time to adapt or risk losing out in public tender processes entirely.

For more information, or to discuss any aspect of procurement, please contact Alison Walton on using 0191 211 7850 or email [email protected].