New proposals to tackle late payment

28 Nov 2014 02:14 PM

New proposals obliging large and listed companies to publish detailed information about their payment practices and performance unveiled.

New proposals obliging large and listed companies to publish detailed information about their payment practices and performance have been unveiled yesterday (27 November 2014) by the Business Minister Matthew Hancock.

The proposed changes will provide robust information making it easier for small businesses to compare the role models with the less reputable. Specifically, the average payment time; the proportion of invoices paid beyond terms; and the proportion of invoices paid within 30 days, over 30 days, over 60 days and over 120 days.

The new reporting requirement has been developed in response to feedback from an earlier consultation, where a clear majority supported increased transparency. The new proposals show how the government intends to use the prompt payment power in the Small Business, Enterprise and Employment Bill which is currently going through Parliament. Reporting on a quarterly basis will be a mandatory requirement for all large and quoted companies.

Business Minister Matthew Hancock said:

Tackling late payment is at the heart of our drive to help small businesses. Coming from a small business background, I know just how critical late payment can be for small firms’ cashflow. We know that small businesses are often reluctant to risk losing business by using the redress measures we’ve put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance.

The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers.

Chief Executive of the Institute of Credit Management, Philip King, said:

Transparency is a key element in changing culture across many aspects of business, and payment behaviour is no exception. I applaud the measures in the Small Business Bill to drive change by allowing more visibility of how businesses behave in paying their suppliers. Small businesses need to make better informed decisions before entering into commercial relationships and this measure will be invaluable in helping them enter into such relationships with their eyes wide open.

Yesterday’s consultation asked for views on the proposals that will see companies:

The consultation follows the announcement last month that a new Prompt Payment Advisory Board has been set up to strengthen the impact of the Prompt Payment Code.

Notes to editors:

1. BIS published its consultation paper “Duty to Report on Payment Practices and Policies” on 27 November 2014. The consultation will close on 13 January 2015. Responses should be sent tolatepayment@bis.gsi.gov.uk, clearly marked as a response to the ‘Duty to Report consultation’.

2. The consultation paper proposes that companies report on the following metrics.

This will allow appropriate benchmarking of payment performance. We are also proposing that firms report on 5 additional areas in narrative form:

3. This measure will give suppliers the information that they need to negotiate fair contract terms, challenge unfair terms and better plan when to expect payment. It will also increase competitive pressure to improve payment practices and policies in line with peers. And it will encourage businesses to process their payments more efficiently.

4. This proposal follows intensive discussions with stakeholders about how to achieve a change in prompt payment culture. In December 2012 the government’s ‘Building a Responsible Payment Culture’ discussion paper consulted on a range of different options. Over 70% of respondents called for more transparency over payment practices. The government consequently committed itself to taking a legislative power in the Small Business, Enterprise & Employment Bill to introduce a new, tough requirement through secondary legislation to increase transparency around how companies pay their suppliers. This consultation shows our preliminary thoughts on how we might exercise that power.

5. In addition, the government has committed itself to strengthening thePrompt Payment Code. On 28 October 2014, a newly established Advisory Board met to discuss: improved monitoring and enforcement of the Code; promoting awareness of the Code; and providing advice on whether there is a need to update the Code. It aims to implement concrete proposals in Spring 2015.