News & Insights

Is your business ready to report on its payment practices?

Large businesses are now obliged to start recording their payment practices with a duty to submit this information to the government biannually. The obligation commenced on 6 April 2017, meaning that for some companies, the first reports will be due in October 2017 (depending on their financial year). How companies and LLPs go about recording this information and keeping it up to date is likely to vary in accordance with their internal practices, but a prompt review of current internal data systems and accounting systems might be prudent if this has not already been done to ensure that the company is capable, and in the process of collecting the required payment data and statistics.

Who does it apply to?

The payment practices reporting will apply to companies and LLPS who are caught by at least two of the following criteria:

• a £36 million annual turnover;
• an £18 million balance sheet total; and
• 250 or more employees.

For a new company/LLP in its first financial year, the duty will not apply. In respect of group companies, each company within the group meeting the above criteria must submit a separate report.

What information must be reported?

Businesses meeting the criteria set out above are required to publish information about their payment practices and performance in relation to “qualifying contracts”. A qualifying contract is one that satisfies all of the following:

1. it is between two (or more) businesses;
2. it has a significant connection with the United Kingdom (it is, or should be, governed by English law);
3. it is for goods, services or intangible property, including intellectual property; and
4. it is not for financial services.

For each reporting period, some examples of the information businesses are required to submit in relation to their qualifying contracts are:

1. descriptions of the business’ standard payment terms and its process for resolving disputes related to payment;
2. statistics on the average number of days taken to make payments and the percentage of payments which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer;
3. the percentage of payments due within the reporting period which were not paid within agreed terms;
4. statements confirming whether suppliers are offered e-invoicing; and
5. whether the business’ practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list.

Why has this been introduced?

The government is keen to address late payment of invoices, which is considered to be an increasingly widespread problem for businesses of all sizes. The proposed new legislation encourages transparency, will enable businesses to review the payment practices of potential customers before they enter into binding agreements, and will hopefully in turn promote a culture of better payment practices generally. Some may have reservations about publicising commercially sensitive information such as their payment terms, but it is yet to be determined how extensive the information provided must be.

What is the procedure?

Businesses subject to this duty must submit this information to a website provided by the government, twice a year. The website is hosted by the government centrally, so the information will be searchable by and readily accessible to third parties.

Directors/designated members are responsible for meeting the reporting obligations and are therefore liable for any failure to do so. Any such failure (or if misleading information is submitted) will constitute a criminal offence and is likely to attract a fine, so it is important this obligation is not overlooked.

If you would like any further information on payment practice reporting please contact Sam Freeman on 01202 205024 or s.freeman@laceyssolicitors.co.uk