Supply chain 23 March 2017

How payment practice reporting will give small suppliers tools to strike better deals   

Chasing late payments can be the death knell of many small businesses

Here, commercial partner at Weightmans law firm, Paul Raftery, gives small suppliers the low-down on what new payment practice reporting rules will mean for them.

From 6 April 2017, some of the UK’s largest companies will be required to undergo payment practice reporting – publish details of their payment policies – twice a year.

Following in the footsteps of gender pay gap reporting, the Reporting on Payment Practices and Performance Regulations 2017 are designed to tackle the issue of late payments by making the performance of large businesses a matter of public record.

Late payments can have a disastrous effect on a firm’s bottom line, especially if they fall into the small business bracket. According to the Federation of Small Businesses (FSB), 50,000 “business deaths” could be avoided if payments were made on time – adding £2.5bn to the UK economy.

It’s hoped payment practice reporting, by making this information available, will help small firms build valuable, fair commercial relationships with responsible customers.

Businesses that publish an unflattering picture of their payment practices will find themselves exposed. The information will let suppliers challenge the payment policies of their customers to prompt a change, negotiate a better deal, or make the decision to sever the relationship entirely – if they judge it to be a commercially viable option.

Payment practice reporting will also provide valuable management information for smaller businesses – allowing them to assess the payment credentials of large customers and establish where they might be exposed to the risk of disruptive late payments.

Businesses obliged to report must, from 6 April 2017, have met two or more of the following conditions in the last two financial years:

  • An annual turnover exceeding £36m
  • A balance sheet total exceeding £18m
  • An average number of employees exceeding 250

The first reports will be publicly available to view through a government portal from October this year.

What information will be available? 

Contracts that need to be reported on by affected businesses include those covering the supply of goods, services, or intangible assets. These contracts must have been agreed on by both parties during the course of their commercial relationship. Business-to-consumer contracts are excluded.

For each contract signed during the six-month reporting period, the affected business will need to provide:

  • Standard payment terms
  • Details of any changes to standard payment terms for the contract in question
  • Steps taken to alert suppliers to any changes in standard payment terms
  • The maximum, contractually agreed amount of time allowed for payment of an invoice
  • An explanation of the process for resolving a payment-related dispute with a supplier

They will also have to supply a range of payment data, including:

  • The average time taken to pay invoices during the six-month reporting period
  • A breakdown of payments made in 30 days or less, between 31 and 60 days and over 60 days
  • Details of payments due during the reporting period that were not paid
  • Details of any disputed invoices

Continue reading to find out how small suppliers can prepare for payment practice reporting

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