Failure to publish a report within the 30-day filing period will be a criminal offence under the regulations. Both the organisation and all of its directors will be liable to a fine on summary conviction.
The legal requirement to report on Payment Practices and Performance came into force in April 2017.
Many private companies and partnerships in the UK are now required to report biannually on their payment practices and performance. This significant new legislation is making payment performance a key priority for management.
The UK government has introduced this legislation to promote growth for SMEs and the broader economy. But getting to grips with the regulations requires a holistic approach that aligns responsibilities across multiple corporate departments and many businesses are struggling to get to grips with this process. With reporting deadlines looming, the time has come to take action.
Xelix can help. Our Payment Reporting tool is a simple, effective and very affordable solution to help organisations comply with this new legislation. Before we explain how, we’re going to outline what the regulations mean for you and your business.
Why is this happening now?
Late payment of undisputed invoices is a significant problem for UK businesses and the wider economy.
SMEs are owed a total of £14 billion by customers. While that’s an overall improvement on £30 billion in 2012, it continues to undermine cash flow and solvency. Grant Thornton’s 2016 Working Capital Study found that 35% of businesses have a Days Payable Outstanding (DPO) exceeding 60 days, equating to over £80 billion of payments falling outside the UK’s payment term guidelines. Remarkably, businesses generating revenues in excess of £1 billion were responsible for 79% of this amount.
Over the years, the government has introduced measures to promote the fair treatment of SMEs and improve supply chain liquidity. The Payment Practices and Performance Regulations are the latest initiative, designed to increase transparency and promote a culture of better payment practices. However, the new regulations are creating very real challenges for large businesses across the UK.
Whilst it’s clear that the UK’s largest businesses are affected by the new legislation, there is also a long tail of smaller businesses that qualify and need to adapt in order to comply.
Who needs to report?
Many businesses are required by law to report. And many businesses are bound to fail to report, either through a lack of awareness of their responsibilities, or a lack of expertise and willingness to engage. The penalties for non-compliance could be severe.
Those required to report include listed companies, private companies and Limited Liability Partnerships (LLPs) which meet two or more of the following criteria:
Reporting can’t be done at a parent level. Each member company or LLP needs to submit a report, if they exceed the thresholds.
Organisations in their first year of trading will not be required to report until the following financial year.
The new regulations don't apply to businesses incorporated outside the UK, but it’s worth noting that international businesses with a subsidiary incorporated in the UK must comply if they fall within the relevant thresholds.
What is required of you?
Full guidance published by the Department for Business, Energy & Industrial Strategy can be found here.
Qualifying companies and LLPs must report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after 6 April 2017. The information must be published through an online service provided by the government, and will be available to the public.
There are 3 elements to the reporting:
These need to be completed on an aggregate level for all suppliers. The report must be signed off by a company director, or a designated member of the partnership in the case of an LLP.
What happens if you don’t report?
Reporting is mandatory for businesses that fall within the defined thresholds. The government is likely to apply fines to those who fail to comply.
Failure to publish a report within the 30-day filing period will be a criminal offence under the regulations. Both the organisation and all of its directors (or designated members in the case of an LLP) will be liable to a fine on summary conviction. It’s also an offence to knowingly or recklessly publish a report, information or statement that is misleading, false or deceptive in a material manner.
Who’s affected in your business?
The new regulations have implications for multiple corporate departments and reporting lines. Compliance with them requires a holistic approach that aligns responsibilities across different areas of the business. These functions include:
In order to successfully transition to the new framework, businesses need to be strategic in coordinating processes and information flow across functions, balancing a number of key imperatives that include working capital, supplier relationships and reputation management.
When will this impact you?
Reports are submitted bi-annual via a government website. Publication of your first report depends on your financial calendar. Reporting periods start on the first day of the new financial year that falls after April 6th, with the first report due 6 months later. This means that the first report is due within 30 days after the end of the first six months of the financial year and the second report is due 30 days after the end of the financial year.
What do you need to report on?
Qualifying businesses need to report on the following via a government web portal.
The business’ standard payment terms, which must include:
The standard contractual length of time for payment of invoices.
Maximum contractual payment period and any changes to the standard payment terms in the reporting period.
How suppliers have been notified or consulted on these changes.
The business’ process for resolving disputes related to payment.
The average number of days taken to make payments in the reporting period, from the date of receipt of invoice or other notice.
The percentage of payments made within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer.
The percentage of payments due within the reporting period which were not paid within the agreed payment period.
Statements of policies and practices (a tick box):
Whether suppliers are offered e-invoicing.
Whether supply chain finance is available to suppliers.
Whether the business’ practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period.
Whether the business is a member of a payment code, and the name of the code.
The report must be approved by a director of the business before it is published and businesses need only publish information about payment practices and performance in relation to qualifying contracts. These are defined as contracts that are:
What can you do to prepare?
In recent months, the Xelix team has met with businesses large and small, and we’ve built up a good picture of what they’re doing to prepare themselves. Here’s some tips based on what we’ve learned.
Highlight reporting dates - particularly the first - and build a comprehensive reporting calendar.
Define your reporting structure. For businesses with numerous entities, it’s important to clarify which subsidiaries in your group are required to report.
Review your Accounts Payable processes and honestly assess your ability to pay suppliers on time, fulfilling contractual obligations. Do you need more robust dispute management protocols? What do the new regulations mean for your organisation in terms of daily operations?
Identify your key stakeholders and determine an appropriate governance structure. This is absolutely critical, as it will promote ownership, accountability and compliance.
Consider the quality and integrity of your supplier data. Without accurate data, you’re flying blind and building your entire approach to compliance on shaky ground.
Consider working capital. How does paying suppliers sooner negatively impact your cash flow position? How can you mitigate such risks?
If you have excess cash, consider dynamic discounting as a way to average down DPO while also realizing a business benefit for your treasury function by generating risk-free returns on that cash. Xelix can help you here.
Determine which financial systems house the data you need to report on. Ensure that these systems are ready and able to extract this data in an efficient manner.
How do the new regulations and your response to them impact your reputation as a socially responsible business?
Consider your supplier relationships. What impact could the greater transparency forged by the new regulations have on your relationships with suppliers?
Numerous issues are bound to arise whilst you iron out your approach to the new regulations, so expect the unexpected. This process is more complicated than many people think, and reporting deadlines are already on the horizon for most qualifying organisations, so it needs immediate attention.
What solutions are out there to help you comply?
Companies large and small are finding this reporting a real headache.
This usually comes down to extraction and/or consolidation problems. It can be challenging getting accurate data out of financial systems and pulling everything together in a timely manner. Complicating this further, many businesses don’t capture invoice receipt date, and some have quirky nuances in their invoicing and payment processes.
Workarounds, hacks and guesswork could result in inaccurate reporting and non-compliance, potentially leading to prosecution and hefty fines. The stakes are high.
Xelix addresses the challenges of data extraction and consolidation. Once setup is complete our technology runs in the background and produces the reports automatically, removing all headaches and workload for finance teams.
By using our Payment Reporting tool, businesses can transition to the new payment regulations quickly and cheaply, without the need to invest in expensive consultants, in-house specialists or bespoke systems.
How does it work?
Once we have access to your data, our technology examines your purchase ledgers and visualises key payment metrics, whilst assessing your overall compliance with the regulations. What's more, we provide valuable analytics and insights on your spend and supply chain. We also ensure you never miss a reporting period by providing submission reminders and keeping you informed of any changes in the regulation.
Our system is sophisticated enough to cover multi-entity reporting, capture data across multiple purchase ledgers, identify duplicate invoices, handle intercompany invoices, manage cut off days and other technical challenges.
Importantly, the vast majority of businesses don’t capture invoice receipt date, creating difficulties in measuring and reporting accurately. Our technology overcomes this problem by letting you build custom rules for different suppliers based on both their invoice method and payment method. It doesn’t matter if one supplier invoices you by post and is paid via BACS, and another invoices by email and is paid via cheque - our technology can account for these differences, meaning that you can ensure 100% accurate reporting.
Why use Xelix?
The new regulations have caught many people unaware, creating work and personal risk for people who simply want to get on with running and growing the business.
Consulting firms are great at offering advice, but we provide the technical plumbing that makes compliance easy and affordable for businesses of all shapes and sizes.
In our conversations and dealings with clients, we have found businesses to be amazed by the simplicity and utility of our Payment Reporting tool. Why don’t you get in touch and find out how Xelix can help you and your business?