A duty for large businesses to report on their payment practices, policies and performance under the Small Business, Enterprise and Employment Act 2015 (S3) will come into force in April 2017.
The requirement is part of the Government’s efforts to support small and medium sized businesses. Large companies and large limited liability partnerships (LLPs) will be required to publish information about their payment practices and performance twice per financial year. They will be required to report on the following:
- The organisation’s payment terms e.g. contractual length of time for payment of invoices, any changes to standard payment terms
- The organisation’s process for dispute resolution related to payment
- The average time taken to pay invoices from the date of receipt of invoice
- The percentage of invoices paid within the reporting period
- The proportion of invoices due within the reporting period which were not paid within agreed terms
- Whether an organisation offers e-invoicing
- Whether an organisation offers supply chain finance
- Whether the organisation’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period
- Whether the organisation is a member of a payment code, and the name of the code
Who will it help?
The reporting requirement aims to increase transparency of large businesses’ payment practices and performance and to give small business suppliers better information so they can make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments.
Poor payment practices and performance will be exposed, alerting organisations to issues and encouraging them to improve.
The duty to report will be mandatory and will apply to large UK companies and large LLPs which exceed size thresholds determined in the Companies Act 2006.
A company or LLP qualifies as micro, small or medium-sized for Companies Act accounting purposes, in a year in which, of its entire turnover, balance sheet total and average number of employees, two are within specified thresholds.
The thresholds for a company to qualify as medium-sized are set out in section 465(3) of the Companies Act and are as follows:
- Not more than £36 million annual turnover
- Not more than £18 million balance sheet total
- Not more than 250 employees
Companies or LLPs will come within the scope of the duty if they exceeded two or all of the thresholds set out in section 465(3) of the Companies Act (as set out above) on both of the last two balance sheet dates.
Group and Individual Reporting
Each business within the reporting threshold will be required to publish its own individual reports.
A group may have very different business practices across its operations, and suppliers will benefit from information about the specific business they are considering contracting with, rather than consolidated information about the group as a whole.
Businesses will report every six months and the reporting dates will be aligned to a business’ financial reporting cycle so that the payment reporting is in sync with the business’s financial reporting obligations.
Where can the reports be found?
To fulfil the requirements of the duty, businesses will have to publish their report on an online portal provided by the Government. Businesses will be free to publish the information on their own website as well if they wish.
Large businesses will be required to report on their process for resolving payment-related disputes. Including the process in your company’s report will provide clarity for suppliers about what action they may need to take if a dispute arises.
A company director will be required to approve the report and ensure the accuracy of the information. Criminal offences, should the report be inaccurate, will apply to the directors and the information will be publicly available, also making it a reputational issue for the business.
Late payment harms business cash-flow, affects investment and can risk businesses’ solvency.
DTM Legal’s prime objective is to help businesses, large and small, run their organisation successfully to achieve commercial benefit. To discuss how we can help you fulfil your duty to report on payment practices and performance, contact Edward Barnes on 01244 354829 or email firstname.lastname@example.org.