Time to report on your payment practices?

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The Government has been consulting on draft regulations containing a new reporting requirement on payment practices and policies.

Section 3 of the Small Business, Enterprise and Employment Bill, which is currently going through Parliament, empowers the Secretary of State to impose a requirement on companies to publish information about their payment practices and policies. This reporting obligation will not apply to micro entities nor to companies that qualify for the small companies regime or which qualify as medium-sized companies under sections 465 or 466 of the Companies Act 2006. The new regime will apply to large companies and LLPs and all quoted companies.

The rationale for the regulations is to tackle the problem of late payment by allowing suppliers to identify which customers are good (and poor) payers.

Companies will be required to report on their websites on a quarterly basis within 30 days of the end of the relevant quarter. The draft regulations state that the report should be in a “prominent position” and appear alongside other payment practices reports. The proposal is that that there be no such obligation to report in the annual accounts.

Companies will be asked to report on an individual rather than consolidated basis.

The Government’s proposal is that the reporting requirement should cover only invoices paid in relation to contracts for goods, services or intangible assets (including intellectual property) and which are connected to the carrying on of a business. Consumer contracts and financial services contracts will fall outside the reporting requirements.

It is proposed that companies would report on:

  • standard payment terms, including the length of any standard payment period, average payment period and the maximum period for payment
  • any variation on standard period for payment, including the notice given of any variation
  • the percentage of invoices paid late
  • the average time taken to pay an invoice
  • percentage of invoices paid within specific thresholds (30 days, 60 days, 120 days, 120+ days)
  • dispute resolution mechanism.

Companies will be asked to report on a standardised basis to facilitate comparison.

A breach of the reporting requirements will be a criminal offence and directors may face personal criminal liability.

WM comment
There has been considerable press coverage in recent months of companies such as Heinz and Premier Foods delaying the settlement of invoices and the Government appears to take late payment of invoices very seriously. Accordingly, we can expect the regulations to be implemented in something very like their current form. Large companies and LLPs will need to monitor their payment practices to ensure that they are able to report in compliance with the new regime. They will be under tight time pressure to do so, and with the possibility of fines for non-compliance, it is important to start getting ready for the regulations now.