New regulations designed to help small businesses get paid on time are now in force – requiring larger companies to publish information about how long they take to pay suppliers.
The requirement affects companies and LLPs that exceed two or more of the qualifying thresholds at the date of their last two balance sheets.
The thresholds are based on the definition of ‘medium-sized’ under the Companies Act 2006 and are an annual turnover of £36 million, a balance sheet total of £18 million and an average of 250 employees during the year.
From 6 April 2017, those qualifying are required to publish information on a Government website about their payment practices and policies and how they have performed against them - including the average time taken to pay suppliers - and to update the information 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.
Senior associate at Buckles Solicitors LLP, Nadine Duncan, said: "It’s important that larger businesses check whether they are required to report under the regulations, and must then keep an eye on the thresholds as these will be updated over time. Smaller businesses can ask new customers whether they are required to report and, if they are, check out payment performance as part of their pre-contract checks”.
She added: “It’s worth remembering that there are other existing measures already available to tackle late payment, including the option of claiming interest and recovery charges, and checks should be made to ensure existing contract terms don’t undermine those rights with something less advantageous.”
Late payment legislation does not have to be referenced in trading terms, as it will apply automatically in any commercial relationship, unless an alternative process has been set out in the contract.
Businesses will not be required to report in their first financial year and those in their second year will be expected to check the requirements against their single, first financial year. For parent companies and LLPs, reporting will be required if the aggregate group figures exceed the thresholds. Any company or LLP within a group that satisfies the test individually, will need to report separately on its own payment practices and performance.