New regulations designed to help small businesses get paid on time came into force this month, with a requirement for larger companies to publish information about how long they take to pay suppliers.
The requirement applies to companies and limited liability partnerships (LLPs) defined as ‘medium-sized’ under the Companies Act 2006. To fall within that definition, the company or LLP has to meet or exceed two or more of the following thresholds at the date of its last two balance sheets:
From 6 April 2017, those qualifying will be required to publish information on a Government website about their payment practices and policies, and how they have performed against them. That is expected to include the average time taken to pay suppliers and the information will need to be updated every six months.
Late payment is recognised as causing serious financial and administrative problems for businesses and the aim of the new regulations is to tackle concerns about adverse treatment of smaller suppliers by larger, more powerful customers, through increased transparency and scrutiny. The Reporting on Payment Practices and Performance Regulations 2017came about as part of the Small Business Enterprise and Employment Act 2015, and applies to public, private and listed companies and to LLPs through a separate set of regulations.
Medium and large businesses will not be required to report in their first financial year. For parent companies and LLPs, reporting will be required if the aggregate group figures exceed two or all of the thresholds above. Any company or LLP within a group that satisfies the test individually will need to report separately on its own payment practices and performance.
It is important that larger businesses check whether they are required to report under the regulations, and then monitor the thresholds as they will be updated over time. Smaller businesses can ask new customers whether they are required to report under the Regulations and, if they are, review payment performance as part of their pre-contract checks. That review could provide very useful insight into a potential customer’s payment habits and allow for cash flow planning.
For advice and assistance in preparing your business for these changes, please contact Lucy Gray, Partner at Hay & Kilner
Call: 0191 232 8345