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Transparency on payment practices

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The Government is consulting on proposed regulations to require all quoted companies and other large companies and limited liability partnerships (LLPs) to publish information about their payment...

The Government is consulting on proposed regulations to require all quoted companies and other large companies and limited liability partnerships (LLPs) to publish information about their payment practices.  The regulations will not dictate payment terms, but are intended to allow businesses to identify which customers are good payers and which offer suppliers the terms that fit best with their business model.

The reporting obligation will apply to all quoted companies.  Other companies and LLPs will be caught if they do not qualify as small or medium for the purposes of Companies Act accounting requirements (or only fail to so qualify because they are public companies).  A company or LLP currently qualifies as small or medium in a year in which it satisfies two or more qualifying conditions.  The medium qualifying conditions, which will set the threshold for reporting, are:

  • Turnover – not more than £25.9m
  • Balance sheet total – not more than 12.9m
  • Number of employees – not more than 250

These entities would be required to publish a quarterly report on their website: in the case of groups, on an individual rather than consolidated basis. The consultation paper sets out an example report, which covers:

  • the entity's standard and maximum payment terms and whether its standard terms have changed in that reporting period;
  • the proportion of invoices paid late (either by number or value of invoices, or both);
  • the average time taken to pay invoices;
  • the proportion of invoices paid within 30 days, 31 - 60 days, 61 – 120 days and over 120 days (either by number or value of invoices, or both);
  • the entity's dispute resolution process for overdue invoices;
  • whether e-invoicing is offered and, if so, whether it is mandatory;
  • whether supply chain finance is offered and, if so, whether it affects other payment terms; and
  • whether the entity has signed up to a payment code and, if so, which one.

The proposal is for the report to cover only invoices relating to business-to-business contracts for goods, services or intangible assets such as intellectual property.  Contracts for certain financial services, such as bank loans, are likely to be exempted.

Directors would be responsible for ensuring that the reports are prepared and for their accuracy.  If a director fails to take all reasonable steps to secure compliance, they will commit a criminal offence and may be fined.

The consultation closes on 2 February 2015.

David Wilkinson is a Partner and Danielle Harris is a Senior Associate and Professional Support Lawyer in Fieldfisher's Corporate Group in London.

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