From next week, large companies in the UK will be required to report on their payment terms and practices – including the average time to pay supplier invoices. The Duty to Report on Payment Practices and Performance Regulation comes into force on 6 April, one year later than originally planned.

Will it apply to you?

UK businesses and limited liability partnerships, whether public, private or quoted, will be required to report twice a year on their payment practices/terms and performance if they meet two out of the following three criteria on both of their last two balance sheet dates: £36m annual turnover; £18m balance sheet total; or 250 employees or more. The reporting requirement will apply to each individual company within a group.

When do you have to report?

Reports will be due from the financial year starting on 6 April 2017 and companies will have to report twice a year:

1. the first report is due 30 days after the end of the first six months of the financial year;
2. the second report is due 30 days after the end of the financial year.

What do you have to report?

The data that needs to be reported relates to payment terms for goods, services or intangible assets, including intellectual property, excluding business to consumer payments and financial services contracts.

Companies will have to disclose the following payment terms:

• standard payment terms, including the period for payment;
• any changes to these over the last reporting period;
• whether suppliers were notified or consulted on this change in advance;
• the maximum period for payment entered into during the reporting period.

Companies will also have to disclose the following performance metrics:

• the average time taken to pay invoices from the date of receipt of invoice;
• what percentage of invoices paid within the reporting period were paid in less than 30 days, between 31 and 60 days, and over 60 days;
• the percentage of invoices due within the reporting period which were not paid within agreed terms.

Also required will be data on dispute resolutions, additional narrative information to explain why payment terms might vary, disputed invoices, supplier lists and 'pay to stay', e-invoicing and supply chain finance, as well as voluntary membership of any prompt payment codes.

The data reported will be aggregated and published on a government website, increasing transparency and public scrutiny of payment performance of large companies and providing suppliers with access to information on trading partners. The main goal of the rules is to tackle late payments to small suppliers in the UK, which were worth £26.8 billion in 2015, according to government statistics.

What should companies do now?

According to Ben Gardner, a commercial law expert from Pinsent Masons, writing on the website Out-law.com, businesses should “be reviewing their payment terms and practices now, and ensure that they have systems in place to gather the data that they will need to provide when submitting their first reports.”

Gardner also writes that businesses should “consider whether their performance against the required metrics is reasonable and the likelihood of any reputational issues which may result from their treatment of the supply chain. Where performance may be considered as sub-standard, businesses should consider whether any narrative can be included in the report to add context to the metric and minimise the likelihood of further scrutiny following publication.”

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CTMfile take: Companies – and individual directors – that fail to submit a report will have committed an offence and will be subject to a fine. See the government website for more information.