Payment practices in the spotlight
Companies who demonstrate poor payment practices will be named and shamed under new regulations aimed at helping small business cash-flow.
The government has identified late payment as being harmful to supplier’s cash-flow. In extreme cases, and particularly for small businesses, this can cause insolvency.
The Department for Business, Energy and Industrial Strategy has issued draft regulations aimed at increasing the transparency of payment practices of large companies and large LLPs. This will allow fair payers to highlight their positive track record as well as exposing poor payment practices to encourage improvement.
As a result, small business will have better information to help them make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments.
All large companies and large LLPs will be required to publish information about their payment practices twice each financial year at 6 monthly intervals on a government website. Within large corporate groups, each entity is required to report individually.
Large businesses are defined as those exceeding two or more of the following thresholds on both of their last two balance sheet dates:
- Over 36m annual turnover
- Over 18m balance sheet total
- Over 250 employees.
The information to be published is quite extensive and will include a narrative description of the organisation’s payment terms and its process for dispute resolution. Statistics will also be required on, for example the average time taken to pay invoices from their date of receipt and the percentage paid within 30 days, between 31-60 days and over 60 days.
It is proposed that the regulations come into force on 6 April 2017 for financial years beginning on or after that date. If a company fails to report, the entity and its directors will be committing a criminal offence. Publishing misleading data will also be a criminal offence.
For more information on payment practices contact Adrian Le Roux