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New duty to report on payment practices: How will it help SMEs?

From April 2017, large businesses will have to report on their payment practices, policies and performance under the Small Business, Enterprise and Employment Act 2015.

The requirement is part of the Government’s efforts to support small and medium sized businesses. Large companies and large limited liability partnerships (LLPs) must publish information about their payment practices and performance twice per financial year, reporting on the following:

The organisation's:
  • payment terms eg, contractual length of time for payment of invoices, any changes to standard payment terms.
  • process for dispute resolution related to payment.
Statistics:
  • Average time taken to pay invoices from the date of receipt of invoice.
  • Percentage of invoices paid within the reporting period.
  • Proportion of invoices due within the reporting period which weren't paid within agreed terms.
If the organisation:
  • offers e-invoicing
  • offers supply chain finance
  • has practices and policies which cover deductions from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period.
  • is a member of a payment code (and name of the code).

Who will it help?

This will increase transparency of large businesses’ payment practices and performance and therefore give small business suppliers better information.  It will help them make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments.

Poor payment practices and performance will be exposed and encourage them to improve.

Requirements

The duty to report will be mandatory and will apply to large UK companies and large LLPs which meet two or more of the following criteria on both of their last two balance sheet dates:

  • over £36 million annual turnover
  • over £18 million balance sheet total
  • over 250 employees.

Group and Individual Reporting

Each business within the reporting threshold must publish its own individual reports.

A group may have different business practices across its operations, and suppliers will benefit from information about the specific business they are considering contracting with, rather than consolidated information about the group as a whole.

Where can the reports be found?

Businesses must report every six months, and the report will be published on a central website provided by the government.

Dispute Resolution

Large businesses will be required to report on their process for resolving payment-related disputes. Including this information in the company report will provide clarity for suppliers about what action to take if a dispute arises.

Director Approval

A company director must approve the report and ensure the accuracy of the information. Criminal offences will apply to the directors if the report is inaccurate.  The information will be publicly available which will also make it a reputational issue for the business.

Late payment harms business cash-flow, affects investment and can risk businesses’ solvency.

Author: DTM Legal

Published on 6th February 2017
(Last updated 13th February 2017)

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