From April 2017 large companies and limited liability partnerships will have to publically report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices.

Regulations laid in Parliament at the end of January will make large businesses publish details on the time taken to pay their suppliers to shine a light on bad practice - latest figures show small and medium sized businesses (SMEs) are owed £26.3 billion in overdue payments.

Ahead of the measures which will come into force in April 2017 to boost transparency of payment practices, the  Department for Business, Energy & Industrial Strategy has published guidance to help large businesses report on how quickly they pay their suppliers.

Failure to report will be a criminal offence.

The guidance covers:

• who needs to report
• what needs to be reported
• how the information needs to be reported
• when the information needs to be reported

Businesses are in scope of the requirement for a financial year if, on their last two balance sheet dates, they exceeded two or all of the thresholds for qualifying as a medium-sized company under the Companies Act 2006. The thresholds relate to turnover, balance sheet total and average number of employees

At the time of publication of the guidance, the current thresholds are:

• £36 million annual turnover
• £18 million balance sheet total
• 250 employees

Small Business Minister Margot James said:

“The UK is home to a record 5.5 million small businesses and the industrial strategy will help address many of the challenges they face getting finance and scaling up. It’s completely unacceptable that small and medium-sized businesses are owed £26.3 billion in late payments, which hampers their ability to grow and has no place in an economy that works for all.”

“Large businesses have an important role to play and the guidance published today will help them fulfil their responsibilities and improve payment practices across the board.”

The changes are part of a package to shine a spotlight on bad payment practice and lead to improved standards. This includes the appointment of the Small Business Commissioner to support small businesses in resolving payment disputes, with the Commissioner’s office expected to be up and running later in the year.

Recent findings from the payment processor Bacs report that nearly half of the UK’s small-to-medium sized businesses experience late payment, with £26.3 billion owed to them in total.

Mike Cherry, National Chairman at the Federation of Small Businesses, commented:

“The new duty to report is the centrepiece of the government’s transparency agenda to combat poor payment practice. We welcome this as an important tool to change a UK business culture where it is deemed acceptable to pay small firms late. We estimate that if payments were made promptly, 50,000 business deaths could be avoided every year, adding £2.5 billion to the UK economy. It’s now crucial that these regulations are introduced and robustly enforced with proper sanctions put in place for any large business that tries to hide its payment practices.”

“There is now a clear will to tackle poor payments. Together with the new Small Business Commissioner and the developing corporate governance agenda to improve supply chain respect at board level, we must see a reduction in the £26 billion owed in late payments.”

Estimated costs of compliance

Alongside the guidance the Department has published a separate report on the estimated costs of complying with the new regulations via a survey of a representative cross-section of UK large companies.

BEIS received data from 36 groups comprising 89 individual companies with an aggregate turnover of £54.7 billion.

The average costs for each group of companies were:

For initial one-off costs including familiarisation with the proposed new requirements, information gathering, IT costs and changes to processes: £24,458 for the whole sample; £40,509 for groups with turnover of more than £0.5 billion; and £8,407 for groups with turnover of £0.5 billion or less. The one-off costs may fall into the first year following implementation but the exact timing depends on the reporting dates for each company.

For ongoing annual costs including maintaining systems and processes and preparing, collating, approving and submitting reports twice yearly: £10,088 for the whole sample; £16,652 for groups with turnover of more than £0.5 billion; and £3,524 for groups with turnover of £0.5 billion or less. The ongoing costs may commence in the first year following implementation but the exact timing depends on the reporting dates for each company.

Click here to download the Guidance Duty to report: guidance to reporting on payment practices and performance