The Procurement Act 2023 has fundamentally changed how government contracts handle supplier payments, introducing mandatory 30-day payment terms and strict compliance requirements. Whether you're a government buyer, supplier, or private sector company, understanding these new obligations is critical for avoiding penalties and winning contracts.
What is the Procurement Act 2023 Prompt Payment Compliance?
The Procurement Act 2023, which came into force on 24 February 2025, represents the most significant overhaul of UK public procurement law in decades. At its heart lies a simple but powerful requirement: all public contracts must include mandatory 30-day payment terms.
This isn't just a guideline—these payment terms are automatically implied in every public contract, even if not explicitly written. The Act extends beyond direct government relationships, requiring that any subcontracts contributing to public contract performance must also adhere to these same 30-day payment standards.
Key Compliance Requirements
- Mandatory 30-Day Payment Terms: Payment must be made within 30 days of invoice verification as undisputed and valid
- Supply Chain Coverage: Requirements extend throughout the entire supply chain for public contracts
- Transparent Reporting: Contracting authorities must publish Payments Compliance Notices every six months
- Automatic Application: Terms are implied in contracts even if not explicitly stated
Why Prompt Payment Compliance Matters
Late supplier payments have devastating economic consequences. Late payments cost the UK economy £11bn per year and close down 38 UK businesses every day. For government contracts specifically, payment delays can:
- Damage supplier relationships and reduce competition for future contracts
- Increase costs as suppliers build payment delays into their pricing
- Harm small businesses who rely on prompt payment for cash flow
- Create reputational risk for public sector organizations
- Result in legal non-compliance with the Procurement Act requirements
The government has recognized that "when the cashflow runs dry, small firms go under — which is why we need to hold larger businesses to account" as stated by Business Secretary Jonathan Reynolds.
Who Does the Procurement Act 2023 Apply To?
The Procurement Act 2023 creates obligations for three distinct groups, each with specific responsibilities and compliance requirements.
1. Government Buyers: Leading Compliance from the Top
Government buyers and contracting authorities bear the primary responsibility for ensuring Procurement Act compliance across their entire supply chain.
Key Responsibilities:
- Implement mandatory 30-day payment terms in all contracts
- Conduct regular spot checks on suppliers to verify compliance
- Publish compliance reports every six months
- Monitor subcontractor payment practices throughout the supply chain
- Ensure contract terms flow down to all levels of suppliers
Critical Focus: Mandatory Spot Checks
From October 2025, government departments must conduct regular spot checks on contracts worth more than £5 million per year to ensure smaller companies in the supply chain are being paid within 30 days. These aren't optional reviews—they're mandatory compliance activities that require:
- Systematic monitoring of payment performance data
- Regular verification of supplier payment practices
- Documentation of compliance status
- Corrective action when non-compliance is identified
Government buyers need automated systems to manage this compliance burden effectively.
2. Government Suppliers: Meeting New Payment Standards
Companies supplying goods or services to government must now demonstrate prompt payment practices to remain eligible for contracts.
Key Requirements:
- Pay invoices within 30 days throughout their supply chains
- Maintain compliance documentation for government spot checks
- Meet bidding eligibility criteria for contracts over £5 million
- Demonstrate payment performance through data reporting
- Ensure subcontractor compliance across all levels
October 2025 Changes
The stakes get higher in October 2025 when suppliers bidding for central government contracts over £5 million per year must demonstrate they pay their invoices within an average of 45 days or fewer (reduced from 55 days). Companies that don't meet these standards will be excluded from bidding.
Government suppliers need systems that guarantee compliance and provide audit-ready documentation.
3. Private Sector Companies: Broader Compliance Obligations
Private sector companies with £54M+ annual turnover face their own prompt payment compliance requirements under the broader Prompt Payment Policy framework.
Key Obligations:
- Report payment performance bi-annually to government
- Meet Fair Payment Code standards for optimal positioning
- Avoid criminal penalties for non-compliant directors
- Maintain competitive eligibility for government contracts
- Demonstrate corporate responsibility through payment practices
These companies often find themselves caught between the Procurement Act requirements (when they're government suppliers) and the broader Prompt Payment Policy obligations (as large private sector entities).
Private sector companies need integrated solutions that address both government contract compliance and broader payment policy requirements.
Conclusion: Procurement Act 2023 Compliance is Now Mandatory
The Procurement Act 2023 has made prompt payment compliance a legal requirement, not a voluntary best practice. Whether you're conducting spot checks as a government buyer, maintaining compliance as a supplier, or managing broader obligations as a private sector company, the consequences of non-compliance are significant.
PAIDD provides the only comprehensive solution specifically built for UK prompt payment compliance across all these scenarios. With automated compliance, perfect audit trails, and guaranteed ROI, PAIDD transforms your compliance burden into a competitive advantage.