The UK Government recognises that thousands of businesses experience severe administrative and financial burdens because they are not paid on time. To address this, the Department for Business, Energy & Industrial Strategy (BEIS) introduced regulations which mean all large UK companies now have a duty to report publicly on their payment policies, practices and performance.
What is the Duty to Report?
The regulations were introduced on 6 April 2017 requiring qualifying UK companies and Limited Liability Partnerships to report on how they pay their suppliers.
The reporting requirements apply to qualifying companies which are deemed to be in scope for a financial year if, on their last two balance sheet dates, they exceed a minimum of two of the following three thresholds:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
There are additional considerations if the company or LLP has one or more subsidiaries. It is important to navigate through the reporting guidance to understand requirements for both the parent company or parent LLP and its subsidiaries.
It has been suggested that approximately 10,000 entities fall within the criteria and thus have a Duty to Report. Analysis shows the number of reporting firms is currently less than 7,000, suggesting there are a significant amount of companies which have failed to report promptly.
Data published on the government’s online portal is already being used by a host of bodies to promote improved payment practices and performance across the supply chain in the UK. For example:
- At the time of writing, the Chartered Institute of Credit Management (CICM) had publically excluded 5 signatories and suspended a further 30 in relation to the Prompt Payment Code (PPC). These are all large companies who were not adhering to the requirements of the code. Whilst the majority of these companies have plans in place to improve their payment performance, and some have already done so, it is illustrative of an indirect implication of the regulations
- The Cabinet Office have also stated that as of September 2019, companies who are bidding for public contracts with a value in excess of £5m will need to be able to demonstrate that at least 95% of their suppliers are being paid on-time within a payment period of 60 days. Failure to do so may impact the company’s ability to be awarded the contract
- The Office of the Small Business Commissioner (SBC) will also have a particular interest in supporting the initiative to improve cash flow, especially in relation to improved payment performance for small businesses across the UK. The data published by large companies is valuable in creating transparency to promote a culture of on-time payment
- Commercial teams are reviewing the data to consider their customers’ payment practices when discussing and negotiating credit terms. Credit control functions in cases look at the data to see their customers’ published payment performance, particularly in relation to overdue receivables to expedite payment. Debt collection agencies are also using the data for similar purposes
There will certainly continue to be increased focus on the regulations in the coming months and it is therefore crucial that the reporting requirements are understood and your organisation is compliant.
We have performed some analysis of the existing submissions. As at 26th July 2019:
Analysis of submissions
- < 7,000 of the expected 10,000 companies have submitted reports
- > 500 reports have been registered but not completed
- 37 is the average number of days to pay suppliers. This is in line with the UK governments current expectations
- 15% of invoices however were paid in > 60 days
- 5,475 is stated as the longest contractual period in days
- 30% of invoices are reported not to be paid within their agreed payment terms
- Use of eInvoicing is low suggesting optimisation of process through automation is still a large opportunity
The submissions suggest:
- Many companies are yet to report
- Interpretation of the existing guidance is varied
- Some companies payment practices and performance are poor and need improving
When reviewing the data by sector, it is clear that there are opportunities for improvement and process optimisation within manufacturing and construction, amongst others. Invoices paid in excess of 60 days and the percentage of invoices not paid within agreed terms will continue to be in focus.
Analysis of submissions by sector
What are the implications of non-compliance?
It is a criminal offence to:
- fail to publish a report
- fail to include the necessary information in the report
- fail to report within the specified timelines
- provide a false, deceptive or misleading statement within the report, whether it be by a business or individual.
Every director of the company, or equivalent in an LLP, is at risk of committing a criminal offence.
Offences under these regulations will be tried in a Magistrates court. If convicted there will be a financial penalty. There are also reputational risks to consider.
How can BDO help?
Please download our information pack below to learn more about the regulations and how BDO can support you.