Under new regulations to be made under section 3 of the Small Business, Enterprise and Employment Act 2015 (the Payment Reporting Regulations), large UK companies will be required on a half-yearly basis to prepare and publish a report on their payment practices, policies and performance for financial years beginning on or after 6 April 2017. There will be a corresponding obligation on UK LLPs under the Limited Liability Partnerships Act 2000.

On 31 January 2017, the Department for Business, Energy and Industrial Strategy published guidance on these obligations which gives some much needed further detail on how the new obligations will work (the Guidance). In this note we look at what the rules mean for businesses in light of the new Guidance.


According to the latest figures from BACS, nearly half of the UK’s small to medium-sized businesses experience late payment, with £26.3 billion owed to them in total. The Federation of Small Businesses has claimed that prompt payment could save an estimated 50,000 businesses from going under every year. The new requirements do not go as far as to prescribe maximum payment terms, but instead force openness and transparency on payment practices, which the government hopes will promote a culture of better payment practices.

The Payment Reporting Regulations are currently awaiting final parliamentary approval and will come into force from 6 April 2017.

The new requirements

Large companies. Only large companies and LLPs (together ‘qualifying businesses’) that have been formed and registered in the UK will fall within the scope of the new requirements. In defining a large business, the regulations piggyback on the criteria set out in the Companies Act 2006 for medium-sized companies. A business is large if, on each of its last two balance sheet dates, it exceeded at least two of the following three thresholds:

  1. Annual turnover of over £36 million
  2. Balance sheet total of over £18 million
  3. More than 250 employees on average

These thresholds will change periodically. According to the Guidance, if the threshold changes between the balance sheet date and the reporting date, qualifying businesses should apply the reporting date thresholds retrospectively.

As well as the individual company thresholds, parent companies of groups will also need to consider the group thresholds. Based on current thresholds, if a group on each of its last two balance sheet dates exceeded at least two of the following three thresholds, the UK parent company will fall within the scope of the reporting requirements:

  1. Annual turnover of over £43.2 million
  2. Balance sheet total of over £21.6 million
  3. More than 250 employees on average

What needs to be reported? A qualifying business will have to publish information about its payment practices, policies and performance in respect of ‘qualifying contracts’ (see below). For each six months of the qualifying business’s financial year, the business will have to publish the following information:

  • Narrative descriptions of its payment terms and process for resolving payment disputes. The Guidance explains that a business that doesn’t have standard payment terms should report its most frequently used terms, and a business that has different standard terms for different kinds of product or sizes of customer should describe what these are and how they differ.
  • Statistics on average number of days taken to pay invoices and the percentage of invoices paid: a) beyond agreed terms; b) in 30 days or less; c) between 31 to 60 days; and d) beyond 60 days. Notably, the Guidance highlights that disputed invoices will be included in these average statistics, so businesses should evaluate how efficiently they resolve payment disputes.
  • Yes or no statements as to: a) the availability of e-invoicing and supply chain finance; b) whether the business’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list and whether such deductions were made during the reporting period; and c) whether the business is a member of a voluntary payment code. The government has expressed its intention to continue to support the Prompt Payment Code administered by the Chartered Institute of Credit Management.

Qualifying contracts. Qualifying contracts are all business-to-business contracts for goods and services (including IP and other intangibles), except: a) contracts for financial services; or b) contracts that do not have a significant connection to the UK. The Guidance provides some further explanation of how a significant connection to the UK can be established. This includes contracts to which UK law would apply, notwithstanding the express choice of law by the parties.

Format for publishing. The report must be filed within 30 days of the end of the relevant six-month period. It will need to be filed and will be published on a government website (rather than the business’s own website), in theory making it easier for small businesses to find and compare the relevant information. Businesses that are not qualifying businesses may also submit a report on a voluntary basis.

Failure to comply

If a qualifying business fails to comply, its directors (or designated members in the case of an LLP) are at risk of criminal proceedings. The Payment Reporting Regulations provide for two offences – an offence of failing to publish a report and an offence of knowingly or recklessly publishing misleading, false or deceptive information. Both offences may result in a fine not exceeding level 5 on the standard scale.

In addition to the risk of criminal prosecution, there is the obvious reputational concern in ensuring large businesses properly comply.

Next steps

Given that the new requirements come into effect for qualifying businesses that have their financial years beginning on or after 6 April 2017, not all businesses have to comply at the same time. For some businesses, the reporting will be due as early as October this year. In any case, it would be advisable for all businesses to start preparing for the new reporting requirements.

Some key steps to consider:

  • Assess whether the reporting duties apply to your business, which contracts they will affect, and when the obligation will kick in for your organisation.
  • Ensure processes are in place to monitor payment performance efficiently.
  • Keep clear records of payment terms and policies.
  • Provide training to all staff who are in charge of payments and make sure that company directors are aware of the risk of being held criminally liable.