Government reveals late payment regulations
From April, large companies will have to report their payment practices twice a year – including the average time it takes to pay supplier invoices.
Guidance for large businesses to report payment practices has been published today as regulations are laid in parliament by small business minister Margot James.
The ‘duty to report’ guidance states that from 6 April 2017 large companies and limited liability partnerships (LLPs) will have to publish their payment practices and performance.
At the time of publication, the thresholds for this reporting are:
- £36m annual turnover
- £18m balance sheet total
- 250 employees
The new law will apply to any company or LLP which exceeds two of any of the three thresholds.
Affected businesses will have to report on their performance twice a year: Once at the half-way point of their financial year, and then at the end of it.
According to the guidance, these reports will be published “on a web-based service provided by or on behalf of government within 30 days of the end of the reporting period”, making it a reputational issue for businesses and giving small and medium-sized businesses (SMEs) publicly available information before deciding to work with firms.
The reports should provide a breakdown of payment performance on the percentage of invoices paid between one and 30 days, the percentage paid between 31 and 60 days, and the remaining balance.
Firms must also calculate and publish the average time taken to pay suppliers over the six-month reporting period.
Qualifying businesses will also have to report on their process for resolving payment disputes, including providing clarity for suppliers about what actions they need to take if such a dispute arises.
Failure to report will be a criminal offence, and business could be prosecuted and fined if they do not comply, or provide false information.
|The new legislation requires businesses to report:
Late payments ‘completely unacceptable’
The new ‘name and shame’ regulations are part of a number of measures aimed at tackling the late payment culture. Other actions include the appointment of the long-awaited small business commissioner to support SMEs in resolving payment disputes.
The role was first mooted back in 2014 and was part of the Small Business Act passed in March 2015, but has been subject to a number of legislative delays. According to sources the commissioner’s office is now expected to be operational by the end of 2017.
In a statement accompanying the legislation Margot James said: “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.
“It’s completely unacceptable that small and medium-sized businesses are owed £26.3bn in late payments, which hampers their ability to grow and has no place in an economy that works for all.
“Large businesses have an important role to play and the guidance published today will help them fulfil their responsibilities and improve payment practices across the board.”
A continual problem
Late payments present a continual problem for the economy, and can cause major cashflow problems, hamper investment and, in severe cases, even present solvency risks to small and medium businesses.
The government reported that in June 2015, £26.8bn in late payments were owed to SMEs, while recent research from insolvency trade body R3 found that at least one fifth of corporate insolvencies in the past year were caused by late payment or the insolvency of another company.
Adequate systems and processes in place
Affected businesses now have three months to prepare reporting payment information. Commenting on the announcement law firm DTM Legal said in the light of this impending deadline, businesses need to ensure they have the adequate systems and processes in place for information gathering and reporting, and must carefully scrutinise their payment policies and practices to prepare for the increased transparency.
Will this new legislation affect your business? How are you preparing?