Requirements for reporting on payment practices for large companies and LLPs

Large companies and large limited liability partnerships (LLPs) are now required to report on their payment practices and policies in relation to certain specified contracts, according to The Reporting on Payment Practices and Performance Regulations 2017 (Regulations).

Those organisations that are caught by the Regulations are required to publish reports relating to their “qualifying contracts”.

Who do the regulations apply to?

They apply to companies and LLPs that meet two or more of these three threshold figures in their last two balance sheets:

• annual turnover: £36 million;
• balance sheet total: £18 million;
• average number of employees: 250 or more.

There are separate thresholds which apply to a parent company of a group. The Regulations will apply to parent companies that meet two or more of these three threshold figures in their last two balance sheets:

• aggregate turnover: £36 million net (£43.2 million gross);
• aggregate balance sheet total: £18 million net (21.6 million gross);
• aggregate number of employees: 250 or more.

Please note that “net” means after any set-offs and other adjustments made to eliminate group transactions and “gross” means without those set-offs and adjustments.

When does it apply?

It applies for financial years beginning on or after 6 April 2017.

What is a qualifying contract?

A “qualifying contract” is any contract which satisfies each of the following conditions:

• it is for goods, services or intangible assets (including intellectual property);
• the parties have entered into in connection with the carrying-on of a business;
• it is not a contract for financial services; and
• generally speaking it is governed by the laws of the UK.

What information is to be published?

Businesses which meet the threshold will be required to publish details of their payment policies and practices and more specifically:

• Details of standard payment terms (a narrative description of the company’s standard terms of payment), details of any variations to the standard payment terms and the maximum payment period;
• an outline of their dispute resolution process for overdue invoices;
• a statement as to whether the company’s payment practices and policies in relation to qualifying contracts include an arrangement for supply chain finance and/or provide for the electronic submission and tracking of invoices;
• a statement as to whether the company is a signatory to a code of conduct or standards on payment practices; and
• details of payment performance, i.e. details of the average number of days to make payments, the percentage of payments made within specified periods, the percentage of payments falling due but not made within payment periods and deductions from payments made.

What is the reporting period?

For most businesses, reporting will occur twice a year. The first reporting period will start on the first day of the company’s financial year, and the second period starts immediately following the previous reporting period.

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