Payment practices: New reporting duty will highlight late payers

Late payment of invoices is considered to be a widespread problem because it can cause cash flow issues that can seriously impact the ability of the business to trade, especially in the short term. The Government has recognised this and legislated to help bring to light those businesses that are good at paying suppliers promptly and those that are not.

The Payment Practices Regulations will apply to large companies and LLPs. Although the following is subject to amendment prior to the regulations coming into force, at present it is expected that businesses with two of more of these criteria will be subject to the new reporting obligations: 

•    a turnover greater than £25.9 million
•    total assets on balance sheet greater than £12.9 million
•    an average number of employees exceeding 250

Businesses to whom the obligations apply will be required to publish on their website details of their payment policies and practices, and update it every six months showing their performance. Specifically, a business will be required to publish the following information:

•    Standard payment terms
•    Average time taken to pay
•    Proportion of invoices paid:
    -  in 30 days or less
    -  between 31 to 60 days
    -  beyond 60 days
•    Availability of supply chain finance 
•    Whether financial incentives were required to join or remain on supplier lists
•    Dispute resolution processes
•    Proportion of invoices paid beyond agreed terms
•    Amount of late payment interest owed and paid
•    The availability of e-invoicing
•    Existence of preferred supplier lists
•    Membership of a payment code

The regulations are expected to come into force in April 2017. In the short-term, businesses should focus on ensuring they are able to comply. Finance teams should be notified of the incoming requirements so that consideration can be given to sourcing appropriate solutions.  

In the medium-term, businesses may wish to consider mechanisms for improving and validating payment reports.  

In the longer-term, if the regulations have the intended effect, those currently paying beyond 60 days may have to carefully consider solutions for optimising payment practices in order to reduce that time.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.