February 27, 2023 Payment practices, policies, and performance
An FSB report in 2022 revealed that a third of businesses were being impacted by poor invoice payment practices. Moreover 8% reported that late payments were actually threatening the viability of their business. This despite the fact that various measures aimed at tackling late payments have been put in place in recent years.
A statutory review has concluded that measures such as the payment reporting requirement for larger organisations and the introduction of the Small Business Commissioner has resulted in some improvement in payment practices. Nevertheless, more needs to be done to ensure that suppliers are paid on time and that larger organisations in particular don’t take advantage of their size to penalise businesses within their supply chain.
To this end, at the end of January 2023 the Government launched a consultation which looks towards an extension of the Reporting on Payment Practices and Performance Regulations. The regulations generally apply to organisations which exceed two or all of the thresholds for qualifying as a medium sized organisation; these being £36m annual turnover, £18m balance sheet total, and 250 or more employees. These criteria are judged on the previous two balance sheet dates or the previous one date if an organisation is in its second year of trading.
The current reporting regulations are due to expire on 6th April 2024 and the first question in the consultation therefore looks at whether the regulations should be extended beyond that date. Other questions look towards expanding the information provided to include the value of late payments, reporting separately on disputed invoices, and clarification in respect of supply chain finance payment dates.
Interestingly, the consultation also looks towards the mandatory inclusion of payment practices and performance reports within the annual director’s report. This, the consultation suggests, could help to highlight the way in which directors have performed their duties under the Companies Act 2006 to act both to foster the company’s business relationships with suppliers, customers and others and to ensure the company is maintaining a reputation for high standards of business conduct. This, the Government hopes, will help to instil a prompt payment culture across business; thereby enabling smaller organisations to have more financial planning certainty.
The consultation, which closes on 28th April 2023, is open not just to those organisations which have to report under the current regulations but also to other interested organisations and those suppliers of any size who deal with reporting businesses.