Guidance published to help businesses prepare to report on payment practices from April

Out-Law News | 07 Feb 2017 | 11:11 am | 3 min. read

Guidance has been published by the UK government to help large businesses comply with their new duty to report on their supplier payment practices and performance, ahead of it coming into force in April.

Companies and limited liability partnerships (LLPs) caught by the new duty will be required to publically report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices. Failure to comply will be a criminal offence, with the company and its directors liable to a fine on summary conviction, according to new draft regulations published by the government alongside the guidance.

Commercial law expert Ben Gardner of Pinsent Masons, the law firm behind, said that the guidance would “help large businesses circumnavigate their way through the new reporting requirements”. However, further guidance could be necessary in the future once businesses began to “drill down" into the reporting metrics, the information they have gathered, and the proposed reporting format, he said.

“Businesses that will be subject to the new requirements should be reviewing their payment terms and practices now, and ensure that they have systems in place to gather the data that they will need to provide when submitting their first reports,” he said.

“In particular, businesses should consider whether their performance against the required metrics is reasonable, and the likelihood of any reputational issues which may result from their treatment of the supply chain. Where performance may be considered as sub-standard, businesses should consider whether any narrative can be included in the report to add context to the metric, and minimise the likelihood of further scrutiny following publication,” he said.

The government said that the new duty would “shine a light on bad practice”, after payment processor Bacs reported that nearly half of the UK’s small-to-medium sized businesses had experienced late payment issues. It comes as part of a package of measures to drive up standards, including the imminent appointment of a Small Business Commissioner to support small businesses in resolving payment disputes and continuing support for the industry-backed Prompt Payment Code.

The duty to report will apply to large businesses and LLPs, defined as those which meet two or more of a £36 million annual turnover threshold, £18m balance sheet threshold and 250 employee head count threshold on both of their last two balance sheet dates. It will come into force on 6 April, with firms whose financial years begin on or after this date required to report within 30 days of the half-way point of their financial year and within 30 days of the end of it.

Metrics that must be reported on include the average time that the business takes to pay supplier invoices from the date of receipt; the percentage of invoices within the reporting period that were paid within 30 days, between 31 and 60 days and over 60 days; and the percentage of invoices due within the reporting period which were not paid within agreed terms. They will only be required to report on the proportion of invoices paid within each of these periods, and not the value of those invoices.

The report should include the standard payment terms of the business for each type of contract that they enter, or the most frequently used payment terms for each type of contract where there is no standard, and include the maximum period for payment entered into during the reporting period. They should also report on whether there have been any changes to these over the last reporting period, and whether suppliers had been notified or consulted on this change in advance.

Businesses will also be required to report on their payment-related dispute resolution procedures, whether they deduct money from invoices in exchange for remaining on a supplier list, whether they offer e-invoicing and supply chain finance, and whether they are signed up to the Prompt Payment Code or other voluntary payment code. The information will be published on a central government website, and must be approved by a company director or a designated person in the case of LLPs.

Margot James, the government’s small business minister, said that the guidance would help large businesses to “fulfil their responsibilities and improve payment practices across the board”.

“The UK is home to a record 5.5 million small businesses and the industrial strategy will help address many of the challenges they face getting finance and scaling up,” she said. “It’s completely unacceptable that small and medium-sized businesses are owed £26.3 billion in late payments, which hampers their ability to grow and has no place in an economy that works for all.”

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