Wouldn’t it be great to know whether large businesses paid on time

As part of our Ask the Expert series, Karen Savage, Partner at law firm Shoosmiths, takes a look at the draft regulations for large companies to report their payment practices.


The regulations

With effect from 6 April 2017, draft regulations (Reporting on Payment Practices and Performance Regulations, 2017) would have large companies and LLPs publishing information about their payment practices and performance twice a year via a government website so that you can see who pays their bills on time. You will be a large company for these regulations if you tick two of the following three criteria: annual turnover of over £36 million; balance sheet total of over £18 million or over 250 employees.

Everyone will benefit from these regulations because you can see who does what, but if you tick two of the following three criteria: annual turnover of over £36 million; balance sheet total of over £18 million or over 250 employees, then you’ll need to be one of the ones who submits their data.

The reporting will include information about your payment terms, including your standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to standard payment terms and whether suppliers have been notified or consulted about any such changes. You will also need to give information about your dispute resolution process related to payments.

Statistics will also feature in the report, and you will need to provide the average time taken to pay an invoice from the date of receipt of the invoice. This will include the percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and lastly over 60 days. You will also need to confirm the proportion of invoices due within the reporting period which were not paid within the agreed terms.

There are a number of statements within the reporting requirements about whether you offer e-invoicing, supply chain finance and whether you are a member of a payment code. For example, the prompt payment code. You will need to state whether your practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether you have done this within the reporting period.

The report will need to be signed off by a director and so the intention is that this will be an issue at board level, and will therefore be a prominent consideration for those affected.

Guidance is expected at the same time as the regulations are placed before Parliament, and readers are welcome to monitor our publications for further updates.

Thoughts?

The aim of these regulations is to enable suppliers to identify which of their customers subject to the regulations are good payers. It will also provide information about payment terms and conditions which will allow suppliers to assess how their customers trade with their suppliers, and presumably whether they wish to offer their goods or services to that company.

Broadly, this is intended to be a tool for small business to tackle late payment, but there can be many reasons for late payment. The companies affected by these regulations will need to consider how they identify the risks from these regulations and manage those within their business, and in communications with suppliers. It may be, for example, that potential partners rule themselves out from a trading relationship with you before you even get the chance to dialogue with them.

Disputed invoices will be included within the statistics which record the proportion of invoices which were not paid within the agreed terms, and within the statistics on the average time taken to pay. This aspect might well need close examination within your business, and what impact if any, disputed invoices could have on your supplier base.

For those suppliers recovering unpaid invoices, this new regime will provide information which might assist with that debt recovery process. Depending on where the company is on the cycle of reporting, current information about their payment profile might assist you with your decision making in relation to debt recovery options.


About Karen Savage

Karen is a Partner and leads the recoveries team at Shoosmiths, a makor UK law firm. Karen has over twokarensavage decades experience in commercial recoveries and insolvency litigation, having acted for a broad range of clients within the financial sector, utilities, debt purchase , trade creditor and credit insurance sector.

Karen is recognised and ranked by Legal 500 and Chambers and known for her commerical and pragmatic advice, together with her exceptional client care skills. Karen is also a previous winner of Credit Todays Litigation Specialist of the Year


Disclaimer – This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

One thought on “Wouldn’t it be great to know whether large businesses paid on time

  1. That’s a nice summary. The point Karen makes about about there being many reasons for late payment and managing risk is absolutely right.

    In reading the text of the advice issued by the Dept. for Business, Energy & Industrial Strategy some interesting points come up too.

    Invoices that have been received within the reporting period but remain unpaid need not be included in the statement. The advice text states:

    “Any invoices that are received but not paid in the reporting period should be recorded in the reporting period in which they are paid. For example, if an invoice was received in the middle of the reporting period and was not paid before the end of the reporting period, it would not be included in the figures for that report.”

    This suggests that invoices which have terms of 30 days but are received 15 days prior to the end of the reporting period should rightly be excluded from the statement, however invoices with terms of 30 days which were received 45 days prior to the end of the reporting period can also be excluded from the statement.

    That’s not so bad in light of the fact that businesses must also report on the percentage of invoices that are beyond terms and remain unpaid in the reporting period. But the text also states:

    ‘If an invoice was already overdue at the beginning of the reporting period, it should not be included.’

    This suggests that if an invoice was received in H1, went overdue and remained unpaid at the end of the H1 reporting period it would be reported against as part of the percentage of invoices that were beyond terms but remain unpaid during the reporting period, BUT when it rolls over into the next reporting (H2) period it would fall off the radar.

    This presents a potential loophole, albeit a small one.

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