Don’t Pay the Price for Bad Practice

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The Department for Business, Innovation & Skills (BIS) has announced its intention to introduce new regulations which require large businesses to report on their payment practices and policies.  Large private companies, LLPs and all quoted companies are expected to be covered by the regulations if approved.

The government has pointed to the negative impact that late payment of invoices has on small business and hopes that new rules will improve the culture amongst the larger corporate entities.  Specifically, the move is designed to highlight the practices of those organisations who implement good payment practices – and draw attention to those with poor records.

Following consultation and Parliamentary debate, the proposals will require large organisations to report on a six-monthly basis, providing information on:

  • Standard payment terms, including any changes to these in the last reporting period.  BIS will provide guidance to clarify how companies should present information where they have different standard terms for different kinds of products.
  • Average time taken to pay invoices.
  • Proportion of invoices paid beyond the agreed terms.
  • Proportion of invoices paid in 30 days or less; paid between 31 to 60 days; and paid beyond 60 days. The government will had made it clear that it considers all payments beyond 60 days represent bad practice.  As such the rules will not require reporting on the proportion of payments between 61 to 120 days and beyond 120 days.   The government has also introduced a maximum 60 day payment term in the voluntary Prompt Payment Code.
  • Amount of late payment interest owed and paid.
  • Whether financial incentives were required to join or remain on supplier lists.
  • Dispute resolution processes for invoices.
  • The availability of: e-invoicing; supply chain finance; preferred supplier lists.
  • Membership of a Payment Code.

The reports will be in a standard format and published on a centralised website to ensure accessibility for suppliers.  It is understood that the BIS is currently developing its IT system and guidance to accompany the regulations.  The government hopes to have the rules in force by April 2016.

The proposed regulations are designed to allow suppliers the opportunity to compare the payment terms of businesses and identify those with unfavourable payment policies.  It remains to be seen whether small businesses will have the financial standing to use the reports to negotiate terms, or whether the changes will simply reiterate what small businesses already know.  Those companies caught by the new provisions can expect greater public scrutiny of their financial workings of the business and an increased regulatory workload.

The proposal does highlight and act as a reminder as to the importance of businesses having their own terms in place whether large or small. For advice on assistance on implementing your own terms of business, contact John Pickervance in the Corporate and Restructuring Department by telephone on 0800 689 3206 or via our Contact Form.

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