The new Late Payment Regulations: 5 things you need to know before April
New ‘duty to report’ regulations will be introduced this year in order to increase transparency and tackle an ever-growing culture of late payments. These new regulations have been designed to identify the worst late payment practises and improve standards across the UK economy. Here are 5 things you should know about the new legislation but please note, the list below is not exhaustive and is based on guidance published on gov.co.uk. You must refer to the official guidelines if you are unsure of your businesses responsibilities.
Why the new regulations?
Every year, thousands of businesses experience several administrative and financial burdens due to not being paid on time. In many cases, this adversely affects cash flow and jeopardises their ability to trade. In the worst cases this can mean insolvency.
Mike Cherry from the Federation of Small Businesses (FSB) explained how damaging late payments can be; “We estimate 50,000 business deaths could be avoided every year, if only payments were made properly”.
Who it applies to
Large companies or LLP’s that exceed any two or all of the following criteria*:
◦ 36million annual turnover
◦ 18million balance sheet total
◦ 250 employees
If a company or LLP is in its very first financial year, it is not required to report. Businesses who have or are a subsidiary/parent company, are part of a merger/takeover/joint venture or operate outside of the UK must refer to the official guidelines to confirm their responsibilities.
What it involves
Businesses within the scope outlined above must prepare and publish information about their payment practises and performance for qualifying contracts**. Information should include details about average time taken to pay invoices, standard payment terms and percentage of payments not made within the agreed terms.
The report must be published bi-annually, contain all information required and be approved by a named director (companies) or designated member (LLP).
If a business does not comply or provides false information they could be prosecuted. It will be a criminal offence by the business and directors/designated members if they fail to publish within the specified filing period (30 days). Offences are punishable in a Magistrates’ Court by way of a fine.
Online. The government will provide a web-based service for businesses to publish the required information as a part of gov.co.uk. This information will be available to the public including suppliers and any other interested parties.
New legislation will come into effect in April 2017.
Businesses will be required to report twice yearly within a specified filing period of 30 days.
Naturally, many businesses are now much more concerned about making late payments. If this sounds familiar – regardless of your business’ size – it may be worth considering an automated solution whereby late payments can be eliminated completely. To find out more about the benefits of automated AP solutions, click here .
∗ Thresholds are periodically updated. Criteria is correct at time of publication.
∗∗ For clarification on what constitutes a qualifying contract, please see the official guidelines , page 11.