Member Article

Payment transparency law to name and shame businesses

A leading North West law firm is warning big businesses that now is the time to get their payment practices in order.

The advice comes in advance of a new law, which will come into play in April 2017, and will put payment practices for all large businesses in the public spotlight. The purpose is to ‘name and shame’ organisations that take a long time to pay their suppliers.

DTM Legal, which has offices in Liverpool and Chester, said in the light of the impending deadline businesses effected need to ensure they have the adequate systems and processes in place for the information gathering and reporting, and carefully scrutinise their payment policies and practices to prepare for the increased transparency.

The new law is a wake-up call for large companies and welcome news to small business suppliers across the North West, according to Ed Barnes, Partner at DTM Legal. He said: “Small and medium sized businesses need to be made aware of the new law as it will give them the opportunity to make informed decisions about who to trade with, help them negotiate fairer terms and challenge late payments.

“Late payments are a huge problem for SMEs across the North West and we have come across cases where they have resulted in disastrous consequences for smaller businesses. They can cause cash flow problems, hamper investment and, in severe cases, even present solvency risks to businesses. The UK government reported that in June 2015, £26.8 billion in late payment was owed to SMEs although many commentators believe the figure to be much higher. According to the latest business in Britain report published recently by Lloyds Bank Commercial Banking, North West SMEs are owed, on average, in excess of £100,000 and the figure is rising.”

Whilst protecting smaller businesses, the legislation will also ensure large businesses are more open about their payment procedures.

In a statement, Margot James MP, Minister for Small Business, Consumers and Corporate Response, said: “This new reporting requirement for the UK’s largest companies and limited liability partnerships (LLPs) will shine a light on payment practices. It will increase transparency and make payment behaviour a reputational boardroom issue. The large businesses already treating suppliers fairly and paying on time can use the data to highlight their track-record. Poor payment practices and performance will be exposed, alerting organisations to issues and encouraging them to improve.”

The new law applies to any company or LLP which exceeds two of any of the thresholds of over 250 employees, over £18 million balance sheet total and over £36 million annual turnover. Big businesses have just three months to prepare to start reporting payment information which includes the average time taken to pay invoices and the proportion of invoices which were not paid within agreed terms.

Large businesses will also be required to report on their process for resolving payment-related disputes including clarity for suppliers about what actions suppliers may need to take if a dispute arises.

Ed Barnes, Partner at DTM Legal, added: “Small businesses and start-ups often rely on week-to-week payments to continue operating. The new law, which comes under the Small Business, Enterprise and Employment Act 2015 (S3), will protect smaller businesses with a goal to discourage SME’s trading with unreliable large scale firms with poor payment practice backgrounds.

“It’s all too often that large scale businesses are able to hide behind a well marketed brand name and keep payment issues hidden. From April 2017, these businesses will have to report in depth payment details every six months and a company director will be required to approve the report and will be held accountable should the report be inaccurate.”

The new law requires large businesses to report:

Descriptions of:

The organisation’s payment terms e.g. contractual length of time for payment of invoices, any changes to standard payment terms The organisation’s process for dispute resolution related to payment

Statistics on:

The average time taken to pay invoices from the date of receipt of invoice The percentage of invoices paid within the reporting period The proportion of invoices due within the reporting period which were not paid within agreed terms

Declarations about:

Whether an organisation offers e-invoicing Whether an organisation offers supply chain finance Whether the organisation’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period Whether the organisation is a member of a payment code, and the name of the code

To fulfil the requirements of the duty, businesses will have to publish their report on an online portal provided by the Government. The information will be publicly available, making it a reputational issue for the business.

This was posted in Bdaily's Members' News section by Violet Brown .