It is a matter of fact that when you are in business you are likely to experience the administrative and financial burden of not being paid on time. This can severely impact on cash flow and possibly lead to insolvency.
The Government has introduced new legislation to combat this threat through the Small Business, Enterprise and Employment Act 2015. There is now a duty on the UK’s largest companies and LLPs to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after 6 April 2017.
Businesses are required to report their payment practices if, on their last two balance sheet dates, they exceed two or all of the following thresholds:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
These thresholds are likely to be updated periodically.
If a business meets the above thresholds, they must prepare and publish information about their payment practices and performance in relation to ‘qualifying’ contracts, for each reporting period in the financial year. There are normally two reporting periods, splitting the financial year into two six month sections.
The report must be published within 30 days of the end of the reporting period.
These businesses are required to report on the following:
- A description of the business’ standard payment terms
- How disputes relating to payment are resolved
- The average number of days taken to make payments from the date of receipt of invoice
- The percentage of payments made which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer
- The percentage of payments due within the reporting period which were not paid within the agreed payment period
- Statements regarding whether suppliers are offered e-invoicing, whether chain finance is available, whether business policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether the business is a member of a payment code.