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Corporate transparency - the requirement to report on payment practices and policies from 6 April 2017.

View profile for Sarah Canning
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The last few years have seen a step forward in corporate transparency with a requirement to register the beneficial owners of companies on the Register of People with Significant Control (PSC) as well as make statements regarding the Modern Slavery Act.  On 6 April 2017, the reporting on Payment Practices and Performance Regulations 2017 came into force accompanied by the Limited Liability Partnerships (Reporting on Payment to Practices and Performance) Regulations 2017.  Both require all large UK companies and limited liability partnerships to publish, on a government website, detailed reports about their supplier payment policies and practices.

To whom do the Regulations apply?

The definition of a large company is set out in section 465(3) of the Companies Act 2006 and the Regulations refer back to this Act and apply to a company that meets two or more of the following turnover, balance sheet and average number of employees thresholds on both of its previous two balance sheet dates.  The thresholds are:-

  • an annual turnover exceeds £36 million
  • a balance sheet total exceeding £18 million
  • more than 250 employees on average

The Regulations also apply to companies that both quoted and unquoted. Companies that are part of a group report separately if they meet the above criteria with a parent company only reporting if it qualifies as large company itself under separate thresholds applicable to parent companies.

A company in its first financial year avoids complying with the Regulations but will be caught in its second financial year if it meets two or more of the above criteria on the balance sheet date in the first year.

The types of contracts covered

Companies regulated by this practice will fall into a wide range of sectors as the Regulations apply to all contracts for the supply of goods and/or services with the exception of financial services and contracts that are not significantly connected to the UK.

What information should be reported?

Each relevant business must publish the following information:

  • standard payment terms expressed in days, including changes in payment terms since the last reporting period and whether there was a consultation with suppliers regarding the change;
  • details of the proportion of invoices that have been paid by the business:
    • beyond the agreed terms;
    • within 30 days;
    • between 31 and 60 days; and
    • over 60 days.  These should be expressed as percentages.
  • how much late payment interest has been paid and is due to be paid by the business to its suppliers;
  • any dispute resolution process for overdue invoices;
  • what the company's dispute resolution process for contractual payments is;
  • whether the company offers E-Invoicing and supply chain finance;
  • whether the company signed up to a voluntary payment code.

How do businesses report?

As of writing, this is sadly not yet clear.  Details of the government's online portal upon which the reports will need to be uploaded are still to be made available and hopefully can be located quickly following a search of the government websites.

How often should a report be made?

A report should be published twice yearly within 30 days after the end of each reporting period.  The reporting period therefore links to the business’s financial year and are generally the first and second 6 months of each financial year.  Given that businesses do not have much time to prepare the report, ensuring that the information is at hand and can be produced within the 30 day period is critical.  

Is it a criminal offence not to comply?

Yes.

Whilst there is a very limited defence for directors based upon what reasonable steps had been taken, breach of this reporting requirement is a criminal offence not only for the company but also its directors.

Further, it is an offence for a person, knowingly or recklessly, to publish a report or make a statement that is misleading, false or deceptive in its content.

What do I do now?

First and foremost, make sure whether these regulations apply to your business.

If they do, preparation is key and the following should be organised :-

  1. Given the personal liability of directors, it is important that all directors are aware of the new legislation.
  2. Put in place practices to obtain this information if the systems currently in place are unable to collate the details.  It is important to start an audit of systems sooner rather than later to see how they may be improved so that the task of reporting can be as simple as possible.
  3. Review any payment practices and implement any internal systems that would assist problems that are identified.  There could potentially be PR mileage in the information being produced and it may be necessary to work with your marketing team to make sure that the messaging is thought through carefully and in advanced any external supplier or media review. This information could also be used as a comparative in a tender process.
  4. Read through the government guidance and regulations as well as checking for the online reporting portal.  The regulations can be located at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/587465/payment-practices-performance-reporting-requirements.pdf

The Regulations have arisen following many years of campaigning by small and medium businesses that have been held to ransom by larger entities whom chose not to pay their suppliers quickly.  The Regulations are here to change this practice and threaten larger businesses with a reputational risk for failing to comply.  The Regulations are a further layer of corporate transparency facing large businesses and with criminal implications for the company and its directors, this is not a regulation to be ignored lightly.

 

 

 

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