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The long-awaited new payment practices regulations under section 3 of the Small Businesses, Enterprise and Employment Act 2015 has arrived.

As of 6 April 2017 companies and LLPs falling into the qualifying criteria will be under an obligation to provide a payment practices report twice a year.

The statutory instrument is aimed at addressing the issue of late payment of undisputed invoices, a problem long perceived as an issue particularly in the construction industry. The goal is to create greater transparency and publicly expose large companies that are not 'good payers'. The government have published guidance which assists in assessing who is required to report and how the reporting process will work.

Who will be required to report?

Whether or not there is a duty to report will depend upon the size of the company or LLP. A company that is considered to be medium sized for the purpose of section 466(4) of the Companies Act 2006 is a 'qualifying company' and must submit a report. At present, this will mean meeting two of the following three criteria in both of the previous two company accounting years:

  1. £36 million annual turnover
  2. £18 million balance sheet total; and/or
  3. 250 employees

Group reporting is not permitted, however if the company is a parent company that meets the criteria above then it will only be required to report where the group exceeded two out of three of an alternative yet similar set of criteria.

What must be reported?

The report must include a narrative description of the company's payment terms and their processes for resolving disputes, together with statistics on average number of days taken to make payments, the percentage of payments paid in 30 days, paid in 31-60 days and paid in 61 days or longer and statements regarding the company's position on e-invoicing, supply chain finance and other payment related statements.

The report will only cover 'qualifying contracts' as defined in the regulations. This carves out financial services and some international contracts, but covers contracts for goods and services and therefore most construction industry contracts.

What next?

Companies with a financial year starting soon after 6 April 2017 will be required to make their first report in October. The government website for the submission of reports had not yet gone live at the date of writing, but watch this space!

This article is taken from Building Interest - Spring 2017