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New payment reporting rules set to improve transparency

New payment reporting rules set to improve transparency

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SEC Group CEO and Barrister, Professor Rudi Klein, considers recent legislation that is likely to have an impact in 2017 on payment periods in the UK

The Small Business, Enterprise and Employment Act 2015 introduced a requirement that large companies must publish their payment performance. Regulations issued under the act will mandate this from 6 April 2017.  From this date, large companies will have to declare the payment periods within which they are required to pay sums due under the contract.

In this context, whether a company is considered ‘large’, and therefore must publish its payment data, is defined by whether or not they are considered a small and medium-sized enterprise (SME) under the 2006 Companies Act: an SME has less than 250 employees, a turnover of under £25.9 million and a balance sheet total of not more than £12.9 million.

The reporting requirements will be detailed in the Duty to Report on Payment Practices and Performance Regulations. At the time of writing only the draft regulations are available; these were originally included within the consultation on the primary legislation.

What are large companies being required to do?

The draft regulations require large companies to provide quarterly reports throughout their financial year but this is likely to become six-monthly reports. Failure to report will result in fines for the directors.

So, what must a payment report contain? With respect to contracts entered into during the reporting period, it must state the:

  • length of any standard payment period
  • average period for payment
  • the maximum period for payment

The report must also state the:

  • average number of days within which invoices/applications were paid
  • percentage of invoices/applications not paid within their period for payments
  • percentage of invoices/applications paid within the following periods:

         - period beginning with date of issue of invoice/application and ending on day 30

         - period beginning on day 31 and ending on day 60

         - period beginning on day 61 and ending on day 120

        - period beginning on day 121

Other matters to be included in the report include publication of the company’s standard terms and whether it has signed up to a relevant code of payment practice.

The report must be published in a prominent position on the company’s website within 30 days of the relevant reporting period. It has to remain on the website for a minimum period of three financial years. Non-compliance with this requirement exposes directors to fines.

Will these measures make a difference?

In theory these measures should make a difference but their impact will depend upon the degree to which they are enforced. Enforcement will only be facilitated by firms being prepared to ‘whistleblow’ in the event that the information published by a large company was false.

It is also important to note that large companies will be reporting ‘on’ their payment record across the board – not just construction. This could, of course, mean that supply chain payments in construction seem better than they are since they are mixed in with other contracts such as regular purchases of ’small ticket’ goods and services.

For more information on the Duty to Report on Payment Practices and Performance Regulations, please click here