Tightened Payment Terms for Public Procurement Suppliers

The UK government’s new tightened payment terms for suppliers in public procurement contracts signals a vital move that will have far-reaching impacts across the business landscape when bidding for contracts.

Far-Reaching Scope of New Public Payment Rules

The new Procurement Policy Note 10/23 (PPN) will require suppliers bidding on government contracts to prove they pay 95% of invoices in 60 days, and their average payment terms are 55 days, tightening to 45 days in April 2025 and 30 days in the coming years.

This new rule applies to central government bodies procuring goods, services and works contracts over £5 million per annum subject to the 2015 Public Contract Regulation. Large framework agreements and dynamic purchasing systems are also included where the individual value of any contract awarded exceeds £5 million per annum.

These new rules aim to accelerate cash flow for struggling small business suppliers. Corporates wanting to maintain access to valuable government contracts now face additional administration to demonstrate that their supply chain payment processes fully comply with the shortened durations.

Heavier Burden of Proof for Compliant Payment Systems

Under PPN 10/23, bidding suppliers must fully prove their ability to meet an average 55-day payment duration to their own suppliers, tightening to 45 and then 30 days in coming years. This includes providing comprehensive invoicing and payment data aligned to the accelerated government terms during the bidding process.

What Tighter Payment Durations Mean for Major Suppliers

To remain eligible for valuable public sector business, corporations face a choice. Either streamline payments to your suppliers to enable swifter invoices. Or lose lucrative revenue streams from central government contracts—the administrative effort involved results in cost savings further down supply chains. However, the scale of change should not be underestimated for procurement processes.

Explore our article “What the New UK Procurement Bill Means for Suppliers” for more insights into the UK’s new Procurement Bill, designed to reshape the post-Brexit public procurement system.

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