Government to Require Big Businesses to Be Accountable for Late Payments to Suppliers
A big gripe of many SMEs is the length of time it takes to be paid by big businesses. There is late payment legislation that seeks to penalise and prohibit late payments, however...
...the problem has still not gone away.
The Government has therefore introduced the Reporting on Payment Practices and Performance Regulations 2017 to require large companies to report on their practices, policies and performance in paying suppliers. The aim is to highlight who are the bad payers and to encourage improvements to help SMEs' cash flows. There is a similar law being brought in for limited liability partnerships as for companies.
Businesses qualify if on their last two balance sheet dates, two or more of the following thresholds are exceeded:
- £36 million turnover
- £18 million balance sheet total
- 250 employees
Businesses that qualify have to report on qualifying contracts. Those are most business contracts which have a significant connection with the UK. This is where the contracts will be performed in the UK or where one or more parties is established in the UK or carries on a relevant part of their business in the UK. It is irrelevant for this purpose which governing law they have chosen.
The information required to be provided is:
- a description of the company's standard payment terms, including length of time that the contract provides to pay invoices, any changes to standard payment terms, and how suppliers are notified or consulted about changes
- the maximum contractual payment period specified in a qualifying contract during the reporting period
- how disputes are required to be resolved as to payment
- average time actually to make payments
- percentage of payments within 30 days, 31-60 days, or more than 60 days
- percentage of payments that are not paid within the agreed term
The businesses will be required to publish their payment reports online in a way that can be found easily.
Failure to comply with this new law will be a criminal offence for the company and every director. It will also be an offence to publish a false or misleading report.
The Regulations apply for financial years commencing on or after 6 April 2017.
If you are a business that may need to comply with the new Regulations, or if you have an issue with late payments from your customers, please contact Paul Gershlick on 01923 919 320.