Payment reporting regulations: All you need to know

05/04/2017

Following months of setbacks and delays, the government’s new payment reporting regulations are at long last set to come into force as of tomorrow, Thursday 6th April 2017.

The measures will force large businesses to report on their payment practices and performance in a bid to increase transparency for suppliers and encourage the worst offenders to clean up their acts.

But what else do we know about the regulations? Here, we explain what they mean, who they apply to and what happens if businesses don’t comply:

What do the regulations state?

The new regulations specify that large businesses will now have to report on their payment practices on a twice yearly basis, within 30 days of the end of each reporting period. These reporting periods are linked to a company’s financial year, but typically the first and second six months of each financial year.

‘Payment practices’ is quite broad. What does it mean?

Specifically, large businesses will have to report on each of the following measurements of their payment performance:

• The average number of days it has taken the business to pay invoices during the previous reporting period
• What proportion of payments weren’t paid within the contractual payment period
• The proportion of payments made within 30 days, 31-60 days and over 60 days
• What their standard payment terms are in days
• Whether the business charges suppliers to be on its supplier list (known as ‘pay to stay’)

Will I have to report on my payment practices?

The regulations only apply to the largest businesses in the UK. By that, we mean any company or LLP that meets two or more of the following criteria on each of their last two balance sheet dates:

• Annual turnover is more than £36 million
• Balance sheet total is over £18 million
• Over 250 employees on average

Why is it being introduced?

Each reporting measurement is hoped to give suppliers more insight into the businesses they are considering selling to. As the issue of late payment has worsened over the past few years, much of the spotlight has been shone on the payment practices of the UK’s largest businesses.

‘Supply chain bullying’ is a phrase that has often been used to describe businesses imposing their own longer payment terms on smaller suppliers, knowing that those suppliers rely on their custom. However, with some waiting as long as 90 or 120 days for payment, it is having a major impact on cash flow and putting many businesses on the brink.

Here are just a few of the most resented payment terms that these regulations hope to prevent.

What are the penalties for non-compliance?

It will be classed as a criminal offence for the company and directors should any qualifying business breach the reporting requirements, whether they fail to publish the report on time or they do so in a misleading, false or deceptive manner. Clearly the government is finally taking the issue of late payment seriously and doing what it can to create a more transparent climate for smaller businesses to benefit from.

Will it make a difference?

Only time will tell. Unfortunately, many small businesses feel as though they cannot refuse orders from large businesses due to the value of the contract to the company, and the prestige of being associated with such a big brand. Whether or not knowing about a customer’s poor payment practices will encourage them to say ‘no’ remains to be seen, but hopefully it will serve as an incentive for these larger companies to clean up their acts and start paying their invoices sooner – and on time.

We’d like to hear your views on this. Do you think it will make a difference? And would knowing a prospective customer’s payment practices make you think twice before accepting their order? Please leave your comments below.