New reporting in force to make supplier payment practices more transparent.
Reports in the press and from Government indicate that SMEs can suffer from the poor payment practices of larger businesses. New legislation was brought into force this month to make it easier for SME suppliers to evaluate the payment practices of those to whom they are considering supplying. Qualifying businesses with a financial year on or after 6 April 2017 will be required to publish a report on their payment practices and performance in relation to contracts for goods, services or intangible assets.
Does my business qualify?
Qualifying businesses are companies or Limited Liability Partnerships (LLP) who meet two of the following thresholds:
- Over £36 million annual turnover
- Over £18 million balance sheet total
- Over 250 employees
Businesses should note that, irrespective of whether they are part of a group structure, each business meeting these thresholds will be required to publish an individual report.
What does it involve?
Qualifying businesses will need to report on:
- their standard payment terms, including the period for payment
- their processes for resolving payment related disputes
- payment performance metrics including:
- the average time taken to pay invoices from the date of receipt of invoice
- what percentage of invoices paid within the reporting period were paid in less than 30 days, between 31-60 days and over 60 days; and
- the percentage of invoices due within the reporting period which were not paid within the agreed terms.
- whether they deduct money from invoices in exchange for a supplier remaining on their supplier list
- whether they offer e-invoicing
- whether the business has adopted a code of conduct on payment practices and if they have the name of that code
- the name of the director who has approved this information
How often do you have to report?
In each financial year a qualifying businesses will need to file a report that’s been signed off by a director half yearly. The reports will have to be made on a portal at www.gov.uk within 30 days of the end of each reporting period.
If a qualifying businesses fails to file a report or reports misleading information then the company or LLP and every person who was a director or designated member immediately before the end of the 30 day period commits an offence and could receive a fine or face a criminal prosecution.
The information is filed on a central website hosted by the government which is easily searchable by suppliers and third parties.
Action points:
Qualifying businesses should immediately:
- review their payment practices and policies
- review and ascertain which of their existing contracts are likely to fall within the scope of the reporting requirement
- update their payment control systems to allow them to compile the data necessary to file the report. Businesses will need to ensure that their systems can adequately track the date of receipt of invoices from suppliers as their payment performance will be measured by reference to specified periods following receipt of invoices
- consider any possible reputational impact of reporting based on their present payment practices and performance and whether this should prompt improvements in the same
Good processes lead to good sustainable business relationships and for many the new regulations shouldn’t be daunting. We work with SME and larger businesses across the South West so if you are concerned do get in touch.
Jessica Brown is a solicitor in the corporate team at Stephens Scown. If you have any queries then please do contact Jessica on 01872 265100, or by email solicitors@stephens-scown.co.uk.