New reporting obligation on payment practices
13 December 2016
The Small Business, Enterprise and Employment Act 2015 created a duty on large businesses to report on their payment practices. Originally this was due to occur from April 2016, however, during the planning process, the Government identified that further research was needed, primarily on the impact on large businesses. It is now expected that the regulations will come into force in April 2017 and apply to financial years beginning on or after 6 April 2017 – so most large businesses will not have to start reporting until 2018.
Businesses that must report
Large companies and large LLPs (as defined in the Companies Act) will be required to publish information on their payment practices twice a year. Large companies and large LLPs are those which exceeded two or all of the following thresholds for both of their last two year end dates:
- Over £36 million annual turnover
- Over £18 million balance sheet total
- Over 250 employees.
For the duty to report, parent companies or LLPs which head large groups will only be required to report if they qualify as large in their own right. Each business in scope will be required to publish its own individual and non-consolidated reports.
Rather than being included in the annual or interim accounts, this information will be up-loaded onto an online portal and made publicly available by the Government. The first report will be due 30 days after the end of the first six months of a large business’ financial year, and the second reporting period will end at the same time as the large business’ financial year, with the second report due 30 days afterwards. A company director (for an LLP, a designated person) will need to approve the information, which must include:
- Payment terms, including - standard contractual payment period, maximum contractual payment period and any changes to standard payment terms and whether suppliers have been notified or consulted
- The process for payment dispute resolution
- Performance metrics including - average time taken to pay from the date of invoice receipt, proportion of invoices paid beyond agreed terms, the percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and over 60 days
- Whether e-invoicing or supply chain finance is offered
- Whether the business is signed up to a voluntary payment code and, if so, which one
- Supplier lists and ‘pay to stay’ - businesses will need to report whether they deduct money from invoices for remaining on a supplier list.
The start of the payment period will be triggered by receipt of an invoice, rather than the date of invoice. To discourage stalling tactics, disputed invoices will not be excluded from the metrics.
The Government intends to issue guidance on how to comply with the reporting requirements. This will cover general, as well as sector specific, questions about the requirements of the duty. Read the Government’s response to the 2015 consultation on the regulations needed to apply the new duty.
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