Small Business, Enterprise and Employment Act 2015: Disclosure of payment practices and policies
The government is introducing new obligations for large companies to disclose their payment practices, policies and terms every six months.
New obligation for certain large companies to disclose payment practices and policies
The government is introducing new obligations for large companies to disclose their payment practices, policies and terms every six months in an attempt to stop the late payment of invoices by, and the poor payment practices of, large companies.
Background
The Small Business, Enterprise and Employment Act 2015 gives the Secretary of State the power to require companies to publish information about a company’s payment practices and policies. This obligation cannot, however, be imposed on certain small and medium sized companies.
In December 2014, the government published a consultation paper with proposed new legislation to address this issue. The government noted that it did not intend changing parties’ freedom of contract. Instead, companies would have to publish the details of their payment practices, policies and terms with a view to using social pressures to make companies pay on time and refrain from exercising their bargaining powers to delay payment. The objective behind these proposals is to “overcome the asymmetry of information regarding payment processes between large and listed firms and their suppliers” to bring greater transparency of payment practices.
In March 2015, the government issued a ministerial statement announcing its plans in response to the consultation which are summarised below.
Who has the obligation to publish their payment practices and policies?
Large private companies, large limited liability partnerships and large quoted companies (as defined in the Companies Act 2006) will have to publish a report on their payment practices and policies. It will not apply to small and medium quoted companies (as had been originally proposed).
Quoted companies in the Companies Act 2006 are companies whose equity share capital has been admitted to the Official List; is officially listed in an EEA State or is admitted to dealing on either the New York Stock Exchange or Nasdaq.
A large company is one whose turnover is more than £25.9m; and whose balance sheet total is more than £12.9m.
Companies will have to report at an individual company level, not on a consolidated basis.
The report must be prepared by the company’s directors and signed by a director.
What needs to be published?
The report will have to include:
- standard payment terms, including any changes to them in the last reporting period
- the average time taken to pay
- the proportion of invoices paid beyond the agreed terms
- the proportion of invoices: paid in 30 days or less; paid in 31-60 days; and paid beyond 60 days
- any amount of late payment interest owed and paid
- whether financial incentives were required to join or remain on supplier lists
- dispute resolution processes
- the availability of: e invoicing; supply chain finance; and preferred supplier lists, and
- membership of a Payment Code.
The government is also considering whether to mandate reporting on other payment practices, such as reverse fixed payments but says it is not currently proposing to do so.
The ministerial statement does not state whether it intends to limit the scope to invoices relating to contracts for goods, services or intangible assets, other than financial products, as originally proposed in the consultation.
An indicative format of the report is available here
When and where does the report need to be published?
The report will have to be prepared every six months and will be published in an open data format on a single central website to ensure transparency and comparability.
What if the company fails to comply?
The ministerial statement does not state whether the regulations will still make it a criminal offence to fail to prepare the report.
The draft regulations (published with the consultation) stated that if the directors fail to prepare a report, any director (who was a director immediately before the end of the relevant reporting period) who failed to take all reasonable steps to secure compliance with the reporting requirement would commit a criminal offence.
Next Steps
The government is expected to lay Regulations before Parliament by early 2017 and those regulations are expected to apply to financial years beginning on or after 06 April 2017.
