Our Small and Medium Enterprise champion, Lucy Mccormack, outlines what suppliers need to know about the government’s prompt payment policy.

Published 30 July 2025

Last updated 30 July 2025

The UK government’s prompt payment policy aims to support UK economic growth and suppliers, including Small and Medium Sized Enterprises (SMEs).

This Supplier Specifics article outlines what suppliers need to know about the prompt payment policy and tips for prompt payment success. Written by our SME champion, Lucy Mccormack.

Why is prompt payment a government priority?

Prompt payment to suppliers ensures a healthy cash flow, which helps to support small businesses and grow the economy. 

Growing the economy is a top priority for the UK government. Growth funds public services, enables investment in hospitals and schools, and raises living standards for the general public. 

In 2024, 5.45 million micro and small businesses accounted for 99.2% of all UK businesses. Late payments can be crippling for small businesses and can prevent them from paying  bills, potentially resulting in business failure. Research carried out by the Federation of Small Businesses describes late payment as one of the biggest problems facing SMEs, leading to 50,000 business closures a year. 

Prompt payment is essential throughout the entire supply chain, not just for the contracting authority (buyer) and its prime contractor or supplier. When businesses pay their suppliers on time, it creates a positive ripple effect, enabling suppliers to promptly pay their own supply chain, including SMEs. 

What is the prompt payment policy?

The prompt payment policy aims to ensure prompt, fair and effective payment of all suppliers down the supply chain.

The Procurement Policy Note 018 (PPN 018) ‘Taking account of a supplier’s approach to payment in the procurement of major contracts’ will be introduced on 1 October 2025 and replaces a series of previously issued PPNs, including PPN 015, PPN 10/23 and PPN 08/21.

PPN 018 requires suppliers to demonstrate that they pay all their invoices within an average payment time of 45 days (this is a reduction of 10 days from PPN 015). This change will help to accelerate payment cycles, particularly benefiting SMEs.

Who does PPN 018 apply to?

PPN 018 applies to buyers from all central government departments, their executive agencies and non departmental public bodies when procuring goods, services or works, with an estimated anticipated contract value above £5 million per year (including Value Added Tax).

There are exemptions, which are detailed in paragraphs 24 to 26, under Exemption Process, of the Cabinet Office’s guidance to PPN 018. Buyers must seek an exemption to the policy from the Minister.

If you are a supplier who sells goods and services to government departments and you use a supply chain, you will be required to demonstrate prompt payment. You will be required to specify this in the Procurement Specific Questionnaire (PSQ) during the tender process. 

When does PPN 018 not apply to suppliers?

As a supplier, you will not be in scope of PPN 018 if you are not intending to use a supply chain in a contract or a call-off contract awarded under a framework agreement.

You will need to state this in the PSQ and will not need to answer any further questions.

How is prompt payment evaluated? 

Prompt payment is evaluated during the tender process through the PSQ. If you have stated you use a supply chain in the PSQ, you will need to answer further questions demonstrating you:

  • are paying 95% of invoices within 60 days (90% with an action plan)
  • are paying all invoices within an average of 45 days

For more details regarding what suppliers will be asked in the PSQ, please see Annex A: Standard Procurement Questions of Cabinet Office’s guidance on PPN 018.  

What payment data can be used by suppliers?

Guidance on what payment data can be used by suppliers is provided in paragraph 11 under Payment performance (question 5) of the Cabinet Office’s guidance on PPN 018.

How are SMEs supported with prompt payment policy requirements?

In September 2024, the Secretary of State for Business and Trade, Jonathan Reynolds, announced a package of measures to tackle late payments and support SMEs. This package included a New Fair Payment Code and other measures including new rules on company reporting. 

Additionally, PPN 018 states: 

  • an SME who has been trading for less than 12 months should not be disadvantaged and can explain its circumstances in its responses
  • if the supplier is a new entrant to the market and has not met the required standard of payment of 95% of all invoices in 60 days in at least one reporting period, they will still pass this question
  • if a buyer can obtain evidence to verify responses to the prompt payment self declaration questions directly and free of charge from a national database, they should not need to ask an SME to provide the evidence

5 tips for prompt payment success

  1. Focus on organising financial records in advance of completing the PSQ – maintain accurate records and implement systems for tracking your invoices.
  2. Read the instructions in the PSQ carefully to understand what you need to complete and by when. 
  3. Read Cabinet Office’s guidance on PPN 018 which includes PSQ prompt payment questions, the evaluation methodology and frequently asked questions.
  4. Understand that all members of a consortium must provide the information required.
  5. Understand what must be included in an action plan, if it is required – see Annex A of Cabinet Office’s guidance on PPN 018.

How does CCS ensure prompt payment is maintained once an agreement is live?

The core terms of the public sector contract require suppliers awarded a place on a CCS 

commercial agreement to maintain levels of prompt payment throughout the contract. All subcontractors must be paid, in full, within 30 days of receipt of a valid, undisputed invoice in order to remain compliant with the terms of the agreement.

More information on prompt payment policy

Read Government Commercial Function’s guidance note on how to take account of a supplier’s approach to payment in the procurement of major contracts 

For support regarding the application of prompt payment in any CCS procurement, please email info@crowncommercial.gov.uk and title your query “prompt payment query for [name of procurement]”.

Looking for more supplier guidance? Read more articles from our supplier specifics series.

Feedback

We always welcome feedback, suggestions or queries. Please submit your feedback to smefeedback@crowncommercial.gov.uk

Supplier Specifics