22.11.16 Late payment – a headache that’s on its way out?

The duty to report payment practices under clause 3 (Companies: Duty to Publish Report on Payment Practices) of the Small Business, Enterprise and Employment Act 2015 is rumoured to be coming into force from 6^th April 2017. This clause aims to improve corporate culture by highlighting the importance of paying suppliers’ invoices on time and ensuring that companies use fair payment terms and conditions.

Exposure to public scrutiny is the Government’s plan to tackle the ever-present problem of late payment, especially within the construction industry. Late payment, standing at a total of £41.5 billion in overdue payments to SME’s from large companies, is a significant problem in the UK economy.

It is envisaged that larger companies will be required to report on their payment practices with effect from effective April 2017 – this was originally planned to be introduced in April 2016. A large company for the purposes of these regulations is one with a turnover of over £36m and more than 250 employees.

Large companies are required to report on the following; -

• Standard payment terms, including any changes to these in the last reporting period
• Average time taken to pay invoices
• Proportion of invoices paid beyond agreed terms
• Proportion of invoices paid within 30 days or less, paid between 31 to 60 days  and paid beyond 60 days
• Amount of late payment interest owed/paid
• Whether financial incentives were required to join or remain on supplier lists
• Process of resolving disputes over invoices and payments
• The availability of: e-invoicing, supply chain finance, preferred supplier lists
• Membership of a payment code

The report must be signed by the company director and uploaded to your website and every six months to make sure that data is accurate and up to date. See the indicated format of the report here.

Secondary legislation needs to be lay before Parliament which will support the companies in completing their reports to an accurate and useful standard with the provision of IT systems and comprehensive guidance. See the draft secondary legislation here which was published in November 2014 as Annex F of a consultation on the duty to report on payments practices and policies. It does not seem as though this has been lay before Parliament and so, we can assume that the secondary legislation may be amended further to the draft that was published in November 2014.

Government is keen on enforcing prompt and fair payment by strengthening the Prompt Payment Code and introducing a 30-day-term “norm” and a 60-day-term absolute maximum, it hopes to encourage bigger enterprises to lead the way.

Aspire Comment

Although collating the information for these reports  will surely cause many headaches for those required to publish the report, it is unlikely to defeat the problem of late payment on its own. It will, however, make companies more susceptible to change due to the transparency of the report and the risk of ruining public reputation and penalties.

It is unclear how closely the regulations will mirror the 2014 draft, what is certain is that they will promote good payment practices. Whilst secondary legislation is not yet passing through Parliament; it is important for companies to make sure they are prepared by following these steps; -

• Keep clear records of payment policies
• Put in place new processes to monitor payment performance efficiently
• Ensure that all staff in charge of payments are aware of the new changes coming into effect

We will keep you updated with any new information further guidance that is published by Government.