What government gets right – and wrong – with its new Fair Payment Code

The festive season can herald a much needed period of ‘forced’ downtime for freelancers after a year of hard work. But outstanding invoices can hang over them like a dark cloud as they enter the inevitable Christmas slowdown, making it difficult for them to truly take their minds off work.

A late payment can make or break plans for gifts, celebrations, and all the other things we look forward to throughout the year – not to mention the viability of a freelance business. It brings into focus why it’s so important for bigger businesses to pay their freelancers on time, and why government needs to urgently get to grips with those who don’t.

Encouragingly, we’re now seeing the first stirrings of this government’s attempt to follow through on pledges to do exactly that. But is Labour’s ‘Fair Payment Code’ just a rebadging of an old Conservative government initiative, or a signal of a more ambitious and transformative approach?

The Fair Payment Code (FPC) is a government-backed scheme that rewards participating businesses for adopting fair payment practices with their suppliers, particularly smaller suppliers, helping them to quickly demonstrate that they uphold good payment practices. 

Unlike the old Code, the FPC has three tiers of recognition:

• Gold Award – for those firms paying at least 95% of all invoices within 30 days 
• Silver Award – for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days 
• Bronze Award – for those paying at least 95% of all invoices within 60 days 

Whatever tier they enter at, every business on the Code must agree to abide by the Code’s principles of being “clear, fair and collaborative” with their suppliers. Awards last for two years, after which time they’ll have to reapply.

It raises the bar for what can be considered ‘good’ when it comes to paying suppliers promptly; and, it matches what IPSE thinks should be the ambition of every business.

Habitual late payments make interacting with financial services more difficult than it needs to be for freelancers. Getting a mortgage, saving for a rainy day, reinvesting in your business; all of it would be much easier if we could be 95% sure of getting paid for your services within 30 days.

Encouragingly, the highest award under the new Code has a simple, unambiguous requirement of paying nearly all invoices within 30 days. In our view, this should be the standard commercial payment term for all businesses. By including it in the code, albeit at the highest tier, government’s ambition is to show that paying freelancers and suppliers promptly is something every business can and should be doing.

Of course, we know that lots of well-meaning businesses aren’t in a position to just snap their fingers and get things right overnight. Under the old Code, businesses that weren’t quite at the standard would reasonably be put off from applying lest they be unceremoniously thrown off of it later on. But FPC awards will need to be renewed every two years, with the ‘medal’ system creating room for meaningful progression. 

All this means that those joining at a lower tier have an incentive to stay in the programme and raise their standards over time.

The Code is still voluntary. The attainment of being on the Code is a nice pull factor, but it’s still lacking a crucial push factor, like making participation in the scheme mandatory for larger businesses. Perhaps a ‘No Award’ category for those not meeting the lower standards could be used.

And whilst it will help to drive up standards among higher performers, it won’t help freelancers whose clients stick rigidly to terms of more than 60, 90 or even 120 days. These unjustifiable demands serve only to treat freelancers like a line of credit as a condition of winning work, slowing down business and local economic growth in the process.

It’s fair to say that the Code can’t fix the problem of late and long payments by itself. IPSE has lent its support to the new Code, and government is right to celebrate its launch as clear signal of its intent to get to grips with the issue. But freelancers need this to be just the start of a bold agenda for payments that could transform the livelihoods of millions of freelancers.

Nullifying the legal standing of unfair terms in contracts, as has been done in Belgium, and investigating the use of unfairly bureaucratic invoicing processes and blacklisting by firms with monopolies on assigning work to self-employed practitioners, are just some of the things IPSE will be pushing government to take on during this Parliament.