Large companies will be required to disclose their payment practices in relation to certain contracts on a web-based service, twice a year, and they will have to do so soon. New regulations will come into force on 6 April 2017, which illustrate how pressing the UK’s late payment culture has become, and how seriously the government has taken this issue following a consultation on the matter.
The new regulations have been outlined in a report by the Department for Business, Energy & Industrial Strategy (BEIS), in which Margot James MP, Minister for Small Business, Consumers and Corporate Responsibility says: “Successful businesses create jobs, and are essential to economic growth. Late payment harms business cash-flow, hampers investment and in extreme cases can risk businesses’ solvency. This puts a strain on any organisation, but is especially difficult for small businesses.”
Back in June 2015, the overall level of late payment owed to small and medium sized businesses was reported to be £26.8 billion. This increasingly worrying figure has prompted government action and Margot James MP says “This new reporting requirement for the UK’s largest companies and limited liability partnerships (LLPs) will shine a light on payment practices. It will increase transparency and make payment behaviour a reputational boardroom issue”.
The BEIS report explains how the government will implement a duty on large businesses to report on their payment practices, policies and performance, under section 3 of the Small Business, Enterprise and Employment Act 2015. Large companies will come under scrutiny, transparency will be increased; and as a result small businesses will be better informed before deciding to trade with large companies given their publicly stated payment policies.
The duty to report is on large UK-based companies and LLPs – and there is a set of regulations for each business type. A large business is an individual company – whether private, public, quoted – and LLPs which exceed two or all of following thresholds, as set out in the Companies Act 2006, on both of their last two balance sheets:
- More than £36 million annual turnover;
- More than £18 million balance sheet total; and
- More than 250 employees.
Large companies and large LLPs will have to report on:
- the organisation’s payment terms, including standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to standard payment terms and whether suppliers have been notified or consulted on these changes; and
- the organisation’s process for dispute resolution related to payment.
They will have to provide statistics on:
- the average time taken to pay invoices from the date of receipt of invoice;
- the percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and over 60 days; and
- the proportion of invoices due within the reporting period which were not paid within agreed terms.
These companies will also have to disclose whether:
- the organisation offers e-invoicing;
- the organisation offers supply chain finance;
- the organisation’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period; and
- the organisation is a member of a payment code, and the name of the code.
A qualifying contract is one for goods, services or intangible assets, made in connection with carrying on a business, and not for financial services.
BEIS has said that not reporting or reporting falsely is a criminal offence, but it will generally seek to encourage a business to comply with the reporting requirement before steps are taken to prosecute. Director approval will be required to ensure the accuracy of the information supplied. For an LLP, the equivalent is a designated person. As such it is vital that those under the duty to report do so, and with precision, as the information will be publicly available and could potentially pose a reputational issue for the business.