The Department for Business, Energy & Industrial Strategy (BEIS) recently published the government response to its consultation paper regarding the new obligation on large companies to report on when they pay their invoices, and other payment practices.
The BEIS have published draft the Reporting on Payment Practices and Performance Regulations 2017 which will bring the duty into effect.
The regulations are intended to come into effect in April 2017.
Who must comply?
Companies must report their payment practices if they satisfy two or all of the following requirements, on both of or their last two balance sheet dates:
- Over £36 million annual turnover
- Over £18 million balance sheet total
- Over 250 employees
What is it?
For companies caught by the regulations, there will be a mandatory duty to report contract payment practices. Companies will have to report on their payment terms, including their standard contractual length of time for payment of invoices. The organisation's process for dispute resolution related to payment will also have to be published. Companies will be obliged to report twice each year.
The report will include statistics on the average time taken to pay invoices, and the percentage of invoices paid within 30 days, 31 to 60 days and over 60 days. It will also include details of the percentage of invoices due within the reporting period which were not paid within the agreed terms. Companies which are caught by the regime will need to ensure that they have processes in place to allow them to capture and report on this data.
The report will cover contracts for the provision of goods, services and intangible assets including intellectual property (although certain contracts - e.g. relating to financial services and overseas will be excluded from the requirement).
Directors must approve the information, and it will be a criminal offence to publish false or misleading information (or to fail to publish a report). Companies caught by the regime (or which may be close to the threshold of having to report) should put systems and policies in place to ensure that they are able to properly meet their obligations.
Importantly, and of most interest to suppliers of those larger companies, the report will be publicly available through a government website set up specifically for that purpose.
Relevance to SMEs
The new rules will apply to companies of the defined size, but they are designed to benefit all companies - particularly SMEs - by pressuring those larger companies into adopting better payment practices.
The BEIS have made it clear that the duty to report is only one part of the government's overall strategy to support SMEs and tackle late payments, which can have a serious effect on cash flow, and can lead to further costs spent on debt recovery.
Consulting the published data before contracting to supply larger customers will allow you to consider whether, for example, it is appropriate to pay particular attention to payment terms and cash-flow risks in agreeing contract terms with those companies.
The data will be publicly available - our recommendation is to make use of it where you can.