A statement on implementing prompt payment practices and policies to large companies.
Tackling late payment is at the heart of our drive to help small businesses. Standing at £41.5 billion, late payment remains a significant problem for the UK economy. Small businesses shoulder the vast majority of this burden. The government is absolutely clear that large companies should lead by example in paying their suppliers promptly and fairly, with 30 day terms the norm and 60 days the maximum. We need to improve corporate culture to drive home the message that it is not right to pay small suppliers late or to use unfair payment terms. I am therefore delighted to be able to announce today the government’s plans for implementing clause 3 (Companies: Duty to Publish Report on Payment Practices) of the Small Business, Enterprise and Employment Bill.
These plans are subject to the will of Parliament. Given the importance of these proposals I believe it imperative to give those affected as much notice as possible to prepare for their future obligations.
Large companies will be required to report on their payment practices and policies from April 2016. We are therefore developing the secondary legislation, IT systems and guidance needed to give effect to them. The government intends to lay secondary regulations early in the next Parliament.
In November 2014, I published a consultation paper, draft secondary regulations and accompanying pre-consultation stage Impact Assessment on detailed proposals for obliging large companies to publish detailed information about their payment practices and performance. This sought views in particular on: which companies should be obliged to report; the information they should be required to provide; the frequency and location of reporting; and the penalties for breaches of the reporting obligation. The consultation closed on 2 February 2015.
On 2 March 2015 the government published a summary of responses. This summarised the views expressed by 59 respondents – primarily business representative bodies, trade organisations and professional bodies. I am grateful to all who responded, and look forward to continued dialogue and engagement as we develop and implement our proposals.
The majority of responses agreed with the government’s proposals that the reporting duty should be mandated for large organisations – large private companies, large LLPs and all quoted companies. There was support for relying on Companies Act definitions to determine the threshold of “large”. Having considered the views of the Regulatory Policy Committee, which queried the original proposal for extending the requirement to small and medium quoted companies, I can now confirm that duty will only cover large quoted companies. This better meets the policy’s aim of highlighting and changing the payment practices of large organisations.
Having considered the views of respondents and arguments put forward during Parliamentary debates, we have concluded that large organisations should be required to report on the following narrative and metrics:
- standard payment terms, including any changes to these in the last reporting period. We will provide guidance to further clarify the expectations of companies in circumstances where they have different standard terms for different kinds of products
- average time taken to pay
- proportion of invoices paid beyond agreed terms
- proportion of invoices paid in 30 days or less; paid between 31 to 60 days; and paid beyond 60 days. The government will, however, not require reporting on the proportion of payments between 61 to 120 days and beyond 120 days, because we are clear that all payments beyond 60 days represent bad practice. This is why we have recently introduced a maximum 60 day payment term in the voluntary Prompt Payment Code
- amount of late payment interest owed and paid
- whether financial incentives were required to join or remain on supplier lists
- dispute resolution processes
- the availability of: e-invoicing; supply chain finance; preferred supplier lists
- membership of a Payment Code
We will also consider whether to mandate reporting on other payment practices, such as reverse-fixed payments. At present, the government is not minded to do so.
An indicative format for the report is provided overleaf.
Most respondents to the consultation argued that the government’s original proposal for quarterly reporting was overly burdensome. The government will consequently require reporting on a half-yearly basis, thereby striking a proportionate balance between reduced reporting obligations whilst still ensuring up-to-date data. To ensure high levels of transparency and comparability, large organisations will need to provide this in open data format to a single central digital location. The government will work with stakeholders in the coming months to design and implement a system that is as business- and user-friendly as possible.
These proposals will allow organisations with good payment records to highlight and celebrate their payment performance, whilst raising public awareness and scrutiny of poorer payers. This has the potential to cause a fundamental shift in the payment performance of the UK’s large organisations. I look forward to working with businesses in the coming months to make this a reality, and tackle the UK’s late payment practices once and for all.