News & Insights

New duty to report on payment practices and performance

What large businesses can expect in April 2017.

The government has recently published draft regulations introducing a duty on the UK’s largest companies and LLPs to report twice a year on their payment practices and performance in relation to the purchase of goods, services or intangible assets (including intellectual property).

The purpose of these regulations is to make larger businesses accountable for their actions, in particular, where smaller businesses are prejudiced by late payment. It is hoped that an increase in transparency will facilitate improved payment practices as suppliers will be in a better position to compare company performance and negotiate fairer terms.

Who needs to report?

The duty to report will apply to companies (private, public or quoted) and LLPs that exceed two or all of the following categories on both of its last two balance sheet dates:

  • Over £36 million annual turnover;
  • Over £18 million balance sheet total;
  • Over 250 employees.

What must be reported on?

Qualifying companies and LLPs must provide various details of their payment policies and practices, to include:

  • Its standard payment terms including any changes and whether suppliers were consulted on this;
  • The average time taken to pay suppliers from the invoice date;
  • Details of the proportion of invoices that have been paid by the business (within 30 days or less, 31 – 61 days and over 60 days), and the percentage of invoices due that were not paid;
  • Whether any late payment interest has been or is due to be paid;
  • Whether it has requested any payment for suppliers to join or remain on a supplier’s list.

When and where information must be reported

The regulations will come into force in April 2017 and will apply to financial years beginning on or after 6 April 2017. Therefore most qualifying businesses will not have to start reporting until 2018.

Qualifying companies and LLPs will be required to file a report every 6 months and this information will be published on a central government website.

Failure to report or publishing false or misleading information will be a criminal offence (committed by the company or LLP and by every director or designated member, although a director will not be liable if he or she has taken all reasonable steps to ensure compliance). These offences are punishable on summary conviction (in the Magistrates’ court) by a fine.

What should businesses do now?

Businesses that will be subject to the reporting requirements should take this opportunity to review its current payment terms and practices, and to ensure it has adequate systems in place to enable it to gather the requisite data.

Further detailed guidance to help companies and LLPs comply with its duties under these Regulations has been published by the Department for Business, Energy and Industrial Strategy (BEIS) and can be accessed here.

If you have any questions or would like further information, please contact FSP’s Commercial & Technology team.