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Payment Practices and Policies

Volume 617: debated on Friday 2 December 2016

Successful businesses create jobs, and are essential to economic growth. Late payment harms business cash-flow, hampers investment and in extreme cases can risk businesses’ solvency. This puts a strain on any organisation, but is especially difficult for small businesses. As of June 2015, the overall level of late payment owed to small and medium sized businesses was reported as £26.8 billion. This is why it is crucial for Government to take action to create a more responsible payment culture, which enables all businesses to thrive and develop.

Today, Government will publish its response to the Duty to Report on Payment Practices and Policies consultation, and draft regulations to implement section 3 of the Small Business, Enterprise and Employment Act 2015 for large companies and large limited liability partnerships to report on their payment practices and performance.

The duty to report on payment practices and performance

Following consideration of views received from stakeholders, large companies and large limited liability partnerships (LLPs) will be required to publish information about their payment practices and performance twice per financial year on a Government web service. They will be required to report on the following:

Narrative descriptions of:

the organisation’s payment terms. Including— standard contractual length of time for payment of invoices, maximum contractual payment period and any changes to standard payment terms and whether suppliers have been notified or consulted on these changes;

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 which were paid in 30 days or fewer, between 31 and 60 days, and over 60 days;

the proportion of invoices due within the reporting period which were not paid within agreed terms.

Statements (i.e. a tick box) 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 if a company fails to publish a report as required, or publishes false information this will be a criminal offence, punishable by a fine on summary conviction.

I would like to draw Parliament’s attention to two matters:

Interest owed and paid

The regulations do not include a requirement to report on the amount of interest owed and paid, which the previous Government committed to include. Businesses have suggested that this metric could be difficult to understand and implement. The Government will keep this metric under review, taking into account any lessons that the introduction of similar metrics to public sector reporting can teach us.

Pay to Stay and Supplier Lists

During the passage of the Small Business, Enterprise and Employment Act through Parliament the previous Government committed that these regulations would tackle so-called ‘pay to stay’ practices. These practices include instances where businesses require payments either for joining or for remaining on a supplier list.

The Small Business, Enterprise and Employment Act allows the Government to require reporting on practices relating to payment of suppliers. As such, the draft regulations require businesses in scope to report on whether they deduct sums from payments to suppliers as a charge to remain on their list of suppliers. This does not cover all payments required from suppliers for joining or remaining on a supplier list. The Government will keep reporting on ‘pay to stay’ under review. The Small Business Commissioner, who will be in post from next year, will be able to tackle such unfair payment practices.

The benefits

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.