Background

The Reporting on Payment Practices and Performance Regulations 2017

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New legislation set to help small businesses with late payments

The Reporting on Payment Practices and Performance Regulations came into force on 6 April 2017, under which larger business now have a duty to report and publish their payment practices with other businesses. Under the regulations, “Qualifying Companies”, those who will have a duty to report, will include all companies incorporated under the Companies Act 2006 and which have exceeded at least two of the following thresholds in a financial year:

  • Annual turnover of £36 million;
  • A balance sheet total of £18 million; or
  • An average number of employees of 250.

Late payment is a significant risk to small business and their ability to grow. It causes them to rely on bank overdrafts and invoice discounting, damaging their bottom line. In the worst cases it can lead to insolvency.

The Federation of Small Businesses has been lobbying Government on late payment for years. According to its research, in 2014 if payments had been made on time and as promised, 50,000 businesses might have been saved, growing the UK economy by £2.5 billion.

Tackling late payment is therefore seen not just as a necessary culture change, by putting pressure on big businesses to respect smaller businesses in the supply chain, but also a fundamental building block for growth in the UK economy.

Small Business Commissioner

So what else is the Government doing about it? Under the Enterprise Act 2016 , the Government introduced the Small Business Commissioner (“SBC”) – a new office, similar to an ombudsman, which will operate a complaints scheme for small businesses encountering difficulties being paid by larger enterprises they are supplying to.

The SBC will hear complaints from businesses with a headcount of fewer than 50 people at the relevant time and which are based in the UK.

The complaints scheme is due to start formally in October 2017 and the process for appointment of the first SBC is ongoing. Prior to October, and the formal commencement of its powers, the SBC (when appointed) will be able to start considering complaints.

Prompt Payment Code

It is expected that the SBC will help build on and around the Prompt Payment Code. The Code, already in force, is a Government backed voluntary code setting out rules for fair treatment of suppliers including a maximum payment period which all signatory companies are required to adhere to.

UK legislation also provides a right to apply statutory interest, and small fixed sum compensation, for late payment under business to business contracts for the sale and supply of goods and services, subject to certain exceptions. However many small businesses are fearful of losing important customers if they start charging interest for late payment. The FSB is therefore lobbying to have the Code made mandatory for businesses over a certain size. Alongside that, it is hoped the SBC will offer a much needed additional route of redress for small businesses experiencing late payment.

If you would like further legal advice on the areas highlighted within this article or any other aspect of company commercial law please do not hesitate to contact our commercial team on 01733 882800 or email [email protected].


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