Companies failing to report payment practices
For more than two years now, large businesses have been legally obliged to publish their payment performance twice-yearly.
The Reporting on Payment Practices and Performance Regulations 2017 were introduced as part of the government’s drive to increase transparency and to address the endemic late payment culture which particularly affects SME. Under the Regulations, fines can be imposed on companies and its directors who are prosecuted and convicted for non-compliance, though we are not aware of any prosecutions for non-compliance to date.
The rules are supposed to provide increased transparency over companies’ payment practices and ensure poor payment practices are made public.
A worsening problem?
However, according to recent research, late payments are on the rise and big businesses are the worst at paying businesses on time. In its latest Business Confidence Monitor, the Institute of Chartered Accountants in England and Wales (ICAEW) reports a 25% rise in late payments since the previous year. Offending businesses span a number of sectors, particularly in property, business services, manufacturing and engineering, construction, retail and finance.
Aside from the reporting obligations, the government has set a target for contractors to pay suppliers within 60 days on 95% of invoices received. Threats of freezing contractors out of public contracts have been issued to those who do not comply.
Despite this threat, very few in the construction industry are achieving this target with only one complying in each of the past two 6 month reporting periods with only a handful of further firms achieving the target in the last reporting period.
It is not all bad news as there have however been some improvements amongst some of the larger businesses in the industry with some publishing significantly improved payment practices since the 2017 Regulations came into effect.
What does this mean?
Companies affected by the rules cannot afford to be complacent. The news from the ICAEW suggests that the late payment culture is increasingly entrenched across a wide range of sectors and that big businesses are not taking their obligations seriously.
A timely reminder of which types of business the Regulations apply to, and how they can ensure compliance may be helpful.
If your business (including LLPs) has exceeded two or more thresholds in the previous two financial years, the Regulations apply to you. Those thresholds are £36m annual turnover; £18m balance sheet turnover; and 250 employees. New businesses to which the Regulations apply are not obliged to report until their second year.
When you make your six-monthly report, you must provide an overview of the terms of your ‘qualifying contracts’ (essentially these are contracts between you and another business for goods, services of intangible property). The overview must include your:
- standard payment terms
- standard contractual (and maximum) length of time for payment of invoices
- your process for resolving payment disputes
- the average number of days for payments to be made during the relevant reporting period.
Government is clearly working hard to stamp out the practice of late payments. Businesses need to understand that if they fall within the Regulations they have no excuse not to get their house in order.
How can we help?
We advise business organisations of all sizes on their statutory responsibilities and contractual obligations. To understand how the Regulations may affect your business, contact the expert commercial solicitors at Herrington Carmichael as early as possible.
Please contact Cesare McArdle on 0118 977 4045 or Mark Chapman on 01276 686222.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.