Good payers highlighted by new regulations
New regulations in force from 6 April will allow suppliers greater transparency regarding the payment practices of their customers.
The draft ‘Reporting on Payment Practices and Performance Regulations 2017’ (the “Regulations”) are expected to come into force with effect from 6 April 2017.
Will they apply to you?
Under the Regulations, certain “qualifying companies and LLPs” must publish data about their payment practices and performance. Subject to certain exceptions below, it is expected that a company will be a qualifying company in a financial year if on the company's balance sheet dates for the two preceding financial years, two or all of the following requirements were met:
- Annual turnover exceeded £36 million
- Balance sheet total exceeded £18 million
- Average number of employees exceeded 250
What must you report?
If the Regulations apply to your company, you will be required to report information concerning your payment terms in respect of relevant contracts. A relevant contract is a contract that:
- is for goods, services or intangible assets (including intellectual property); and
- the parties have entered into in connection with the carrying on of a business.
The information that you need to provide will include your standard contractual length of time for payment of invoices, maximum contractual payment period applicable during the reporting period, any changes to standard payment terms, whether third parties have been consulted or notified about those changes and an explanation of the company's process for resolving a payment-related dispute with a supplier.
You will also have to provide:
- a statement as to whether the company's payment practices and policies:
- provide supply chain finance i.e. for the supplier to receive payment of an invoiced amount from a finance provider before the end of the payment period with the company reimbursing the finance provider
- provide for electronic submission and tracking of invoices or
- allow the company to deduct from payment under a contract a charge for a supplier to remain on the company's list of suppliers or potential suppliers, sometimes referred to as "pay to stay"
- data regarding the average time taken to pay an invoice, the percentage of those payments made (beginning with the day after receipt by the company of an invoice or notice of payment) within 30 days or less; between 31 and 60 days; and over 60 days, together with the percentage of payments falling due in the reporting period which were not paid within the payment period. The Government has indicated that disputed invoices should be included in these statistics.
The information must be provided bi-annually through a government website.
What should you do?
The Regulations will enable suppliers to assess how their customers trade with their suppliers and which of their customers are good payers. If you will be subject to the reporting duty you may wish to:
- Review your payment practices and policies.
- Review and ascertain which contracts fall within the scope of the reporting requirement.
- Update your payment control systems to allow them to compile the data necessary for compliance with the duty. In particular, if group systems do not allow reporting for each individual company who will be subject to the duty, this facility will need to be made available. You will also need to ensure that your systems can adequately track the date of receipt of invoices from suppliers as your payment performance will be measured by reference to specified periods following receipt of invoices.
- Identify the risks from the Regulations and take steps to manage these both within communications with suppliers and within your business.
- Consider possible reputational impact should you fail to comply with your obligations.
Mike McMahon is an associate in the corporate team and may be contacted on 0121 200 8136 or email firstname.lastname@example.org.