Business Minister Michael Fallon was seen puffing his chest cocksuredly this week after news broke that, following his threats of a “name and shame” campaign, no fewer than significantly less than half of the FTSE 350 are now signed up to the Prompt Payment Code.

The Code, which is backed by the Institute of Credit Management and the Department for Business, Innovation and Skills, asks large businesses to commit to pay their smaller suppliers within the agreed payment terms. As we saw earlier today, February is an exceptionally tough month cashflow-wise, and one delayed payment can very realistically be the difference between life and death for a small enterprise or freelancer.

Hang on a minute though – if a Code is required to make these companies pay up, why do we include due dates on our invoices and agree payment terms in our initial contracts? Isn’t politely asking someone not to do something fairly redundant, when doing that thing is illegal anyway?

Our resident credit control experts Safe Collections explained the rules to us:

The basic principle is that if terms are agreed by both parties at the outset then they are legally binding and should be honoured.  By “the outset” we mean prior to issuing the invoice!  Any term included only on an invoice is post-contractual and difficult to enforce.

If no terms are agreed the law states a business defaults to standard terms (usually 30 days from date of invoice).

Fallon was at pains to point out that an additional 94 firms, including Next and Sainsburys, had signed up to the scheme. Meanwhile in the world of things that aren’t basically meaningless, official figures showed that bank lending to small businesses – a vital lifeline for those firms suffering cashflow shortfalls – had slumped by £2.4 billion in the last quarter of 2012, despite the introduction of the Funding for Lending scheme, designed to encourage banks to open up credit to SMEs. The British Chamber of Commerce said the figure was “clearly disappointing”.

Will the Prompt Payment Code end up changing anything? Safe Collections point out that the Code does have uses outside direct credit control enforcement, as it provides an easy way for business leaders and politicians to raise the issue of late payment. However they too have their concerns, telling us:

“We support any campaign that seeks to increase awareness of late payment and limit the damage done to the British economy.  But when we know for a fact that many of the signatories to this code continue to arbitrarily delay payments to suppliers with spurious invoice “queries” and other delaying tactics, we do sometimes wonder if the code makes any practical difference to small businesses.”

We remain unconvinced, however. All signs point to ever-increasing payment times for small businesses and name-and-shame campaigns are, as we saw recently with the tax affairs of Google and Amazon, largely ignored by big businesses.

What do you think? Is the Prompt Payment Code worth the trouble? Let us know in the comments.

Photo by metku