The government has announced it will introduce a requirement for many companies to report on payment practices, and a hardening of the Prompt Payment Code on payment terms.
Last month we reported that BIS (the Department for Business Innovation & Skills) was consulting on proposals to improve cashflow for small businesses and address payment practices.
In a related move, BIS has since announced (on 20 March) that "large" companies will be required to publish their payment practices and policies from April 2016. The government says it is seeking to drive a fundamental shift in payment culture and it expects large companies to lead by example. As we explain below, "large" could mean any company with a turnover of more than £25.9 million.
Disclosure
The new reporting regime will require "large" companies to disclose the following:
- standard payment terms;
- proportion of invoices paid beyond agreed terms;
- average time taken to pay invoices from date of issue;
- proportion of invoices paid within 1 to 30 days, 31 to 60 days and beyond 60 days; and
- amount of late payment interest owed and paid.
BIS has confirmed that "large companies" will include companies and limited liability partnerships which qualify as "large" under the Companies Act 2006. This will capture many companies that have a turnover of more than £25.9 million or more than 250 employees.
The data will be uploaded to a publically available central digital location twice a year. A draft version of the report that large companies will be required to upload can be viewed here.
Large companies will also be expected to provide information about their dispute resolution processes and the availability of e-invoicing, supply chain finance and preferred supplier lists. If preferred supplier lists are available, they will be required to disclose whether they have requested payments from suppliers to join or remain on the list. In addition, they will be required to confirm whether they are a member of a payment code, such as the Prompt Payment Code (see below).
When will this apply?
The new regime is expected to be implemented in April 2016. On 2 March, the government published a summary of stakeholder responses to its consultation and these will be taken into consideration while it develops the legislation, guidance and IT infrastructure required to effect the changes.
The proposals arise out of powers contained within the Small Business, Enterprise and Employment Bill (which is currently in the latter stages of the legislative process). The government published draft regulations in November 2014 at the outset of the consultation process. It has since confirmed several changes to the draft regulations (e.g. reporting requirements will be on a half-yearly basis rather than quarterly) and it will publish amended regulations and accompanying guidance after the general election.
Prompt Payment Code strengthened...
The Prompt Payment Code is a voluntary code. Its signatories commit to paying their suppliers within clearly defined terms, and to ensuring there is a proper process for dealing with any issues that arise.
On 26 February, the government announced changes to the Prompt Payment Code, which include introducing a 60-day maximum payment term and enshrining a 30-day payment term as the norm for all signatories. It is also creating a Code Compliance board to enforce the Prompt Payment Code, including its maximum payment term.
BIS will be writing to all signatories over the coming weeks to explain the changes, which will be phased in over several months.