Reporting on payment practices
In a move to ensure that small and medium sized organisations and businesses (SMEs) are treated fairly and paid on time, ‘large companies’ will have to publish a twice-yearly report about their payment practices. The current definition of a large company is one with over 250 employees, £36 million annual turnover, and/or an £18 million balance sheet total.
The reporting procedure comes into effect from 6 April 2017 with the aim of improving cash flow for SMEs so that they may trade more effectively and are less likely to be declared insolvent.
The style of the report is left to the company, but it must include the following information:
Narrative descriptions of the business’ standard payment terms, such as the standard terms for the length of time taken to pay invoices. If there has been a change in the standard terms since the previous report, this must be noted with details of how suppliers were informed and if they were consulted before the change. The process for resolving disputes about payment should also be included in the narrative.
Having explained the theory, the report then moves on to a statistics section which details what actually happened during the reporting period. Compilers will be expected to demonstrate:
The average number of days it took to pay an invoice from the day of receipt. This should be shown as the percentage of invoices paid in 30 days or fewer; invoices paid between 31 and 60 days, the percentage which took over 61 days before they were paid, and the percentage of payments which were not paid within the agreed terms.
Having dealt with statistics, a tick box system is acceptable to indicate the following:
The provision of e-invoicing, whether there is supply chain finance, if there are lists of preferred suppliers, and if the business is a member of a payment code. It the latter is ticked, then the name of the code should be given.
HMRC offers guidelines and examples of good practice and for the majority of large companies the report will not be problematic, although it will involve setting aside time to compile the statistics and produce the report. However, SMEs which could reach one or more of the thresholds in any given year, should be aware of the need to report payment practices and performance. Voluntary reports are acceptable, so if your business is close to the thresholds, then a discussion with your accountant or tax adviser makes sense.
The reports will be published on the government’s website and will be available for any interested parties to view. Companies with a financial year beginning 1 January should publish their first payment practice report on or before 30 July 2018. Qualifying businesses which do not comply may be prosecuted.
As of the 6th April 2017, businesses who fall within the scope of being a “large company” will have to publish a report (twice a year) on their payment practices. The report aims to improve corporate culture by ensuring that companies use fair payment terms and conditions and suppliers are paid on time.
The reporting requirements include;
- Standard payment terms, including any changes to these in the last reporting period
- Average time taken to pay invoices
- Proportion of invoices paid beyond agreed terms
- Proportion of invoices paid within 30 days or less, paid between 31 to 60 days and paid beyond 60 days
- Amount of late payment interest owed/paid
- Whether financial incentives were required to join or remain on supplier lists
- Process of resolving disputes over invoices and payments
- The availability of: e-invoicing, supply chain finance, preferred supplier lists
- Membership of a payment code
Reporting on payment practices may seem like another headache but with Aspire’s help, you can ensure that your business is ready for all its reporting duties ahead of April 2017.
Reference: http://aspirepartnership.cmail20.com/t/ViewEmail/d/60786A838341702D/1D05384A3D3320C42018F019E6F15D33 (part5)