Late payers forced to reveal payment practices

16 May 2017
Fleur Lewis

Fleur Lewis

Cash flow is a key factor for many small and medium-sized businesses (SMEs), particularly for those that struggle frequently with being paid late by their trade customers, writes Fleur Lewis.

Having to wait for payment can result in a cash flow shortage for businesses, possibly making it difficult to trade, or forcing them to delay paying their suppliers, or creating a need to borrow.

One good piece of news on this issue is a government initiative to force companies to reveal their payment practices. Large companies are now under pressure from the law to reveal how long they take to pay their suppliers.

For financial years beginning on or after 6 April 2017, large companies and Limited Liability Partnerships (LLPs) have to report half-yearly on their payment practices, in order to show how long they are taking to pay their suppliers. This is meant to help ensure that SMEs are paid on time.

The new reports will have to be made on a portal at www.gov.uk within 30 days of the end of each reporting period and must be approved by a director before submission. Suppliers will be able to search the reports to check on whether their trade customers are good payers or not.

No company will have to make a report in its first financial year.

According to the government, UK SMEs are owed more than £26bn in overdue payments, with more than half of these SMEs experiencing problems with late payment. Bringing more transparency to the issue is expected to name, shame and change the behaviour of the worst payers.

The new reporting requirement is introduced in advance of the appointment of a Small Business Commissioner who will oversee payment practices.

Who has to report?

The report has to be made by businesses that exceed at least two of the following criteria on their last two balance sheet dates:

·       £36m turnover

·       £18m balance sheet total

·       250 employees 

What is reported on?

The report that has to be made will have to cover the following:

·       Standard payment terms and the process for resolving payment disputes

·       Data on the average number of days taken to make payments in the period

·       The proportion of payments made within 30, between 31-60 days and 61 days plus

·       The proportion of payments due in the period which were not paid on time

·       Whether suppliers are offered e-invoicing and if supply chain finance is available

·       Details of any charges made for being on a supplier’s list

·       Details of any payment code observed, including the Prompt Payment Code. 

The Department for Business, Energy and Industrial Strategy has published guidance for companies and LLPs to help them comply with the rules.

Fleur Lewis is a partner at Bishop Fleming accountants.