Britain’s largest companies and limited liability partnerships are to be required to report publicly twice a year on their supplier payment practices, policies and performance, under new regulations that come into effect in April.
The rules will force disclosure on agreed payment terms and whether the business has complied with those terms. Businesses must also disclose if they have separate payment terms for suppliers of different sizes (eg, SMEs), providers of different product types or any other segmenting variation.
They will also be required to say whether supply chain finance or e-invoicing are offered to suppliers.
Guidance recently published by the UK government Department for Business, Energy and Industrial Strategy says that the information must be published on a government website which will be available to the public. The rules apply to businesses with financial years beginning on or after 6 April 2017.
Businesses that are required to report must provide a range of narrative descriptions, statistics and statements:
- Narrative descriptions: This includes the standard contractual payment terms, the maximum contractual period, whether there have been any changes to these terms, how suppliers were consulted or notified of these changes, and the business’s process for resolving disputes.
- Statistics: Includes the average number of days to make payment from receipt of invoice, the percentage of payments made in 30 days or fewer, 31-60 days or more than 60 days, and the percentage of payments not paid within the agreed terms. The figures relate to the volume of invoices, not their value.
- Statements (eg, a tick box): Includes whether e-invoicing is offered, whether supply chain finance is offered, whether the business’s practices include charging to remain on a suppliers list, and whether the business is a signatory to a payment code.
The rules apply to businesses that, in brief, meet at least two of the following three criteria:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
There are additional criteria in the rules relating to UK parent companies, joint ventures and what happens in the event of a merger or takeover. Fines may be levied for non-compliance.
The rules cover “qualifying contracts” – a contract for goods, services or intellectual property between two businesses with “a significant connection to the UK”. Examples include a contract which will be performed in the UK, or where one or both parties is established in the UK or carries on a relevant part of their business in the UK. Financial services contracts are exempt.
Supply chain finance disclosuresOn supply chain finance, the government’s guidance states: “If the supplier receives the full amount due, without having to pay a fee or having any amount deducted from the payment, then the date on which the supplier received the payment can be reported as the date of payment. If the supplier does not receive the full amount or has to bear the cost of any fee for the supply chain finance, then the date on which the payment is made by the qualifying company or qualifying LLP (generally to the finance provider) is the date of payment.”
The website will be available from April 2017 on the government portal at www.gov.uk. The first business to have to comply will be submitting information from October 2017 onwards.