Since April 2017, large businesses have been required to report on their payment policies, practices and performances, and share details with the public. With poor payment practices plaguing businesses across the UK, companies of all sizes should be familiar with the regulations. Take a look below as we explore payment practices, as well as why, how and which businesses should be reporting on them.
Why were the regulations introduced?
Countless businesses across the UK suffer from the poor payment practices of their clients and customers. Predominately, the regulations were introduced as a way to tackle late payments as well as the tactic a number of larger businesses were using, which was to essentially force smaller businesses into accepting unreasonable payment terms. Both of these poor payment practices can have a significant impact on businesses and can, in worst case scenarios, lead to insolvency.
Which businesses need to report their practices?
Any business can choose to publish a report on their payment practices if they so choose, however, larger businesses who meet a certain criteria, are obligated to submit half-yearly reports. Should two of the three following criteria apply to a business, then they must report on payment practices:
- £36 million annual turnover
- £18 million balance sheet total
- 250 employees
Businesses in their first financial year are not required to report.
What should be reported?
Businesses must report on their payment practices and performance on qualifying contracts, which include:
- A contract between two (or more businesses)
- A contract that is ‘sufficiently’ linked to the United Kingdom
- The contract is for goods, services or intangible property (e.g. intellectual property)
- The contract does not cover financial services
Businesses that fail to report or provide false information are essentially committing a criminal offence and run the risk of being prosecuted.
It is hoped that in having to report on their payment practices, larger businesses will commit to improving. For smaller businesses, having an understanding of the payment practices of a larger business prior to working with them, allows them to assess the risk to their business, and therefore potentially avoid damaging late payments once work has begun.
Is your business struggling with poor cash flow due to late payments? Zodeq 360 provides a number of comprehensive back office support services including outsourced credit control. Run by industry experts, our credit controllers carry out customer focused chasing that will not only reduce the risk of late payments from your clients, but also maintain that vital business relationship. Contact our team today for more details on how we can help your business to get paid on time.