PPN 015
PPN 015, effective from 24 February 2025, requires suppliers handling government contracts exceeding £5 million annually to comply with payment timelines. Specifically, suppliers must pay 95% of invoices within 60 days or, if non-compliant, present an actionable plan for improvement. Additionally, the average payment period must not exceed 55 days. This policy applies to central government departments, their executive agencies, and non-departmental public bodies, excluding NHS trusts and devolved administrations in Scotland, Wales, and Northern Ireland.
Consequences of PPN 015:
- Improved Cash Flow: by ensuring prompt payment, this policy aims to unlock £20 billion in unpaid invoices, thereby improving cash flow for businesses and enabling them to invest in growth.
- Enhanced Supplier Reliability: the assessment criteria aims to ensure that suppliers have effective payment systems, which contributes to a more reliable supply chain.
- Support for Small Businesses: the policy is part of the government's Plan for Small Businesses, aiming to support small businesses by encouraging better cash flow.
PPN 018
Following the initial reform, PPN 018 will take effect from 1 October 2025. Like its predecessor, it applies to contracts exceeding £5 million annually within the same organizational scope.
PPN 018 reduces the acceptable average payment period to 45 days while maintaining the 95% compliance threshold for invoices paid within 60 days. This change aims to accelerate payment cycles, particularly benefiting small and medium-sized enterprises (SMEs), which often face significant impacts from late payments.
Consequences of PPN 018:
- Further Reduction in Payment Delays: by reducing the average payment days threshold to 45 days, PPN 018 aims to further enhance cash flow for businesses.
- Continuation of Support for SMEs: this policy continues the government's commitment to tackling late payments and supporting SMEs.
- Increased Compliance Requirements: suppliers will need to ensure their payment systems are even more efficient to meet the stricter criteria.
Evaluation
Both PPNs include mechanisms for exemptions where applying these requirements may be deemed irrelevant or impractical. However, these exceptions are narrowly defined to ensure that the goal of prompt and fair payment remains central.
The phased implementation of PPN 015 and PPN 018 reflects a strategy to drive cultural and systemic change in payment practices. By first establishing improved standards under PPN 015 and subsequently introducing more stringent requirements under PPN 018, the government aims to support economic recovery and growth.
For businesses, these changes necessitate a review of payment systems to ensure compliance. Suppliers must prioritize transparency and efficiency in their financial operations, while government bodies must equip procurement teams with the tools to assess and enforce these requirements effectively.
Conclusion
The introduction of these PPNs represents regulatory adjustments aimed at fostering trust and reliability in the procurement process. By addressing the challenge of late payments, these policies aim to create a fairer and more dynamic economic environment, supporting businesses in their growth.
If you have any questions about the above, please feel free to reach out to our Procurement Team, who will be more than happy to advise.
With assistance from Gabriella Rasiah, who is a trainee in our Commercial Team.
