Duty on large companies to report on payment practices and policies
The passing of the Small Business Enterprise and Employment Act in the last days of the coalition’s government has imposed on large quoted companies, basically quoted businesses with more than 250 employees, a new duty to report on payment practices and policies.
The measure is seen as vital to help reduce the £41.5bn overdue payments owing to SMEs by large businesses. At the same time as introducing this new requirement, the government strengthened the Prompt Payment Code, with the objective of making Code signatories lead by example in paying their suppliers promptly and fairly, with 30 day terms the norm and 60 days the maximum.
What are the reporting requirements on large companies?
Every six months large business will have to publish the following information:
- standard payment terms, including any changes to these in the last reporting period. The government intends providing guidance to further clarify the expectations of companies in circumstances where they have different standard terms for different kinds of products
- average time taken to pay
- proportion of invoices paid beyond agreed terms
- proportion of invoices paid in 30 days or less; paid between 31 to 60 days; and paid beyond 60 days. The government will, however, not require reporting on the proportion of payments between 61 to 120 days and beyond 120 days, because it believes that all payments beyond 60 days represent bad practice. This is why we they recently introduced a maximum 60 day payment term in the voluntary Prompt Payment Code
- amount of late payment interest owed and paid
- whether financial incentives were required to join or remain on supplier lists
- dispute resolution processes
- the availability of: e-invoicing; supply chain finance; preferred supplier lists
- membership of a Payment Code
The companies under the duty will need to provide the data in open data format to a single central digital location. The government will work with stakeholders to design and implement a system of reporting.
When is the new reporting requirement to be implemented?
The intention is that the first reports will be available from April 2016.
What happens next?
The new government will have to put secondary legislation before Parliament. So the legislation will need the agreement of Ministers before the new measures can be finalised. New IT systems will have to be developed as well as guidance on details of the specific requirements. Please see the report below to see the indicative format of what the new report will look like.
What new obligations will Prompt Payment Code Signatories be required to meet?
The outgoing Minister of State at BIS and the Chief Executive of the Chartered Institute of Credit Management (who administer the Prompt Payment Code) wrote to Code signatories informing them of the changes to the code. The letter below spells out the new strengthened measures that signatories are required to meet.