New Payment Practices and Performance Regulations. Is your business ready?

Transcription

1 New Payment Practices and Performance Regulations Is your business ready?

2 1 Over 26bn of late payments were owed to SMEs in Britain The new Reporting on Payment Practices and Performance Regulations came into force on 6 April Is your business ready? Introduction The Government has identified that the late payment of undisputed invoices is a significant problem for UK businesses. According to Department for Business, Energy & Industrial Strategy (BEIS), as of June 2015 over 26bn of late payments were owed to small and medium sized enterprises (SMEs) in Britain. 1 L ate p ayments clearly impact cash flow and can jeopardise solvency. T h e Rep orting on Payment Practices and Performance Regulations ( referred to as Regulations th rough out th is document) came into force on 6 A p ril T h e Regulations do not p rescrib e max imum p ayment terms, b ut rath er introduce a new req uirement for transp arency th at is intended to p romote a culture of b etter p ayment p ractices. T h e Regulations req uire comp anies and L imited L iab ility Partnersh ip s ( L L Ps) 2, wh ich meet two or more of the size thresholds, to publish specific information regarding th eir current p ayment p ractices and p erformance. T h is increased transp arency will enab le p otential sup p liers to comp arativ ely ev aluate and mak e more informed decisions ab out wh o th ey ch oose to do b usiness with. T h e Regulations are in addition to th e ex isting v oluntary Promp t Payment C ode and are th e latest of a series of new rep orting req uirements th at seek to influence corporate behaviour by requiring increased disclosure ( for ex amp le, gender p ay gap rep orting under T h e E q uality A ct ). O nce comp anies and L L Ps ( referred to as b usinesses th rough out th is document) h av e gath ered and understood th eir current state and initial data, th e following q uestions will need to b e answered: H ow does disclosing th is information imp act your wider rep utation as a resp onsib le b usiness? H ow do you comp are to your comp etition and wh at is th e lik ely imp act of th e disclosures on your sup p lier relationsh ip s? W h at will th e imp act on liq uidity of work ing cap ital b e if, as a result of th e Regulations, p ayments are made faster th an today? Supplier relationships Reputation Payment Practices and Performance Working capital Key functions involved responding to the Regulations Finance Procurement/ Accounts payable IT Treasury C orp orate rep orting Payment p olicies Data accessibility L iq uidity Areas impacted C C F S h C S C p p p omp leteness and accuracy of data ontract terms Data integrity orecasting ared serv ices onsistency of contracts ystems landscap e ash osition Dispute resolution Payment outsourcing Preferred sup lier ayments Rep utation 1 BEIS press release Late payment reporting guidance launched for large businesses Jan 31st As defined by the Companies Act 2006 or previous legislation and Limited Liability Partnerships Act New Payment Practices and Performance Regulations

3 Businesses will need to bring together key functions across th e organisation to nav igate a careful b alance b etween work ing cap ital, sup p lier relationsh ip s and th e conseq uent imp act on rep utation. Who needs to report? T h e Regulations came into force on 6 A p ril and ap p ly to comp anies ( p riv ate comp anies, q uoted companies and LLPs) as defined by the Companies A ct or L imited L iab ility Partnersh ip s A ct. A b usiness will q ualify and h av e a duty to rep ort in relation to a financial year if, on the balance sheet dates for the two preceding financial years, it met two or more of th e siz e th resh olds: Annual turnover of 36mn Balance sheet total of 18mn 250 employees T h ese th resh olds will b e up dated p eriodically. Does it apply to foreign businesses? T h e rep orting req uirement does not ap p ly to b usinesses wh ich are incorp orated under anoth er country s laws. International businesses with a UK subsidiary incorporated in the UK will need to consider if th e th resh olds are met b y th e UK subsidiary. Does it apply to new businesses? T h e rep orting req uirements will not ap p ly to a new business in its first financial year. A business in its second financial year will be in scope if it meets two or more of th e th resh olds on b oth of its last two b alance sh eet dates. Does it apply to parent companies and parent LLPs? A p arent comp any or p arent L L P ( with any sub sidiaries) is req uired to rep ort on th eir own p ractices and p erformance if it meets b oth of th ese req uirements: 1. T h e p arent comp any meets th e siz e th resh olds 2. Aggregate figures for the group exceed the th resh olds for group s T h e th resh olds for group s are currently: Aggregate turnover of 36mn net 3 (or 43.2mn gross) Aggregate balance sheet total of 18mn net 3 (or 21.6mn or more gross) Aggregate number of 250 employees Does it apply to businesses within a group? A ny b usinesses with in a group th at meets th e siz e thresholds for the two preceding financial years will need to rep ort indiv idually on th eir own p ayment p ractices and p erformance. C omp anies and L L Ps with in a group th at do not ex ceed th e th resh olds, do not need to rep ort indiv idually. T h ere is no p rov ision for aggregated group - wide rep orting of p ayment p ractices and p erformance. What are the reporting requirements? Businesses are required to provide the following information in relation to th e rep orting p eriod on www. gov. uk. Narrativ e descrip tions of: S tandard p ayment terms, ex p ressed in days M ax imum p ayment terms C h anges to th ese terms and th e associated consultation p rocess with sup p liers p rior to th ese ch anges Dispute resolution process S tatement of p olicies and p ractices as to wh eth er: S up p liers are offered e- inv oicing Supply chain finance is available S ums can b e deducted from sup p liers to remain on sup p lier list and wh eth er th ey h av e done so T h e b usiness is a memb er of a p ayment code of conduct and th e name of th e code S tatistics on p ayment p erformance, including: T h e av erage numb er of days tak en to mak e p ayments The percentage of payments made within 30 days, days, or on or after 61 days T h e p ercentage of p ayments due wh ich were not p aid with in th e p ayment p eriod ( agreed terms) T h e rep ort must b e ap p rov ed b y a director of th e b usiness b efore it is p ub lish ed. 3 Net = after any offsets and adjustments to exclude group transactions. 2 New Payment Practices and Performance Regulations 3

4 T h e Regulations and guidance documents contain definitions for the following: S tandard p ayment terms S tandard and max imum p ayment p eriods Supply chain finance A v erage time to mak e p ayments Percentage of p ayments made with in th e rep orting p eriod Prop ortion of p ayments due with in th e rep orting p eriod th at were not p aid with in th e agreed p eriod Which contracts should be reported on? Businesses that meet the thresholds are required to p ub lish information ab out th eir p ayment p ractices and p erformance in relation to q ualifying contracts. According to the Government s guidance 4 a qualifying contract is a contract which satisfies all of th e following: I t is b etween two ( or more) b usinesses It has a significant connection with the UK I t is for goods, serv ices or intangib le p rop erty, including intellectual p rop erty It is not for financial services When will businesses be required to publish this information? T h e Regulations came into force on 6 A p ril , and will apply to financial years that start on or after th at p oint. Businesses will be required to report twice-yearly, with reporting dates aligned to the financial rep orting cycle as follows: First report within 30 days after the end of the first six months of the financial year Second report 30 days after the end of the financial year T h e tab le b elow sets out rep orting timetab les for a range of financial reporting periods. Where will the information be published? E ach b usiness will b e req uired to p ub lish its p ayment p ractices rep ort on www. gov. uk. T h is will p rov ide sup p liers and oth er interested p arties with a single p lace to access th e information and comp are p erformance. G oing forward we ex p ect b usinesses will want to consider th e ex tent to wh ich th ey include p ayment p ractices and p erformance rep orting in oth er corp orate rep orts e. g. th e A nnual Rep ort and S ustainab ility Rep ort. What will happen if a business fails to publish a payment practices report? T h e G ov ernment h as indicated th at p ub lic p ressure on b usinesses will b e th e main driv er for comp liance th is is ab out increasing transp arency regarding p erformance. Under the Regulations, failure to publish a report within the 30 day filing period will be a criminal offence, for wh ich b oth th e organisation and all of its directors ( or designated memb ers in th e case of an LLP) will be liable to a fine on summary conviction. H owev er, comp any directors and designated memb ers of an L L P will not b e p ersonally liab le if th ey can sh ow th at th ey took all reasonab le step s to ensure th at th e req uirements would b e met. I t will also b e an offence for a p erson to k nowingly or reck lessly p ub lish a rep ort, information or statement th at is misleading, false or decep tiv e in a material manner. Whether a contract has a significant connection with the UK will depend on the circumstances. Examples include a contract that is performed in the UK, or where one or both parties is established in the UK or conducts a relevant part of their business in the UK. Financial services covers any service of a financial nature, including ( b ut not limited to) insurancerelated serv ices, b ank ing serv ices and oth er financial services. 5 6 A p M Example reporting deadlines Financial year beginning First reporting period First report published on or before ril 6 April to 5 October November 2017 ay 1 May 2017 to 31 October November June June 2017 to 30 November December July July 2017 to 31 December January January January 2018 to 30 June July April April 2018 to 30 September October April April 2018 to 4 October November Duty to report on payment practices and performance Guidance to reporting on payment practices and performance. January See Section 2 of the Small Business, Enterprise and Employment Act 2015 for the definition of financial services. 4 New Payment Practices and Performance Regulations 5

5 Road map to reporting Below is an example road map for complying with the Regulations. Please refer to the reporting deadlines table on page five for your specific timings. Report Go live Mobilise Assess Act Immediately after your year end Gather live data Within 30 days of your half year Prepare your report for the first six months and report publicly Review lessons learned Immediate action required Decide which of your corporate entities will be required to report Establish the deadlines and time to get ready based on each entities financial year and reporting periods Understand accessibility of all the required data and information Determine governance structures and responsibilities e.g. set up working group (Finance, Procurement, IT, Treasury) Prepare internal communications for those involved in responding to the Regulations At least six months before your year end Determine the specific scope for reporting under legislation (likely in scope payments etc.) Extract test data for reporting Address required exclusions from payment data set (e.g. non-qualifying contracts) Create and review your draft report submission Review outputs and consider extent to which your reporting disclosure will impact reputation, working capital and supplier relationships Conduct impact assessment and understand possible mitigating actions that can be taken Before your year end Design changes to processes, systems, policies, procedures, roles and responsibilities to mitigate impact of reporting disclosure Address the implications to the wider business if payment practices need to be changed Implement changes Collect pilot data to track progress Monitor periodically and assess reporting implications 6 New Payment Practices and Performance Regulations 7

6 Five things for you to think about now 1. Data quality: W h ich entities and contracts q ualify? Do current ERP systems have all the necessary data p oints, such as inv oice receip t date? 2. Reputation: W h at are th e p ossib le rep utational imp lications of disclosing th e data? 3. Impact: W h at are th e imp lications on th e wider business (e.g. cash flow) if payment p ractices need to b e ch anged? 4. Capacity: W h o will b e resp onsib le for p erforming th e calculations, giv en th e deadlines for th e disclosures? Resp onding to th ese Regulations may imp act your rep utation, your work ing cap ital and your sup p lier relationsh ip s. O ur team h as th e sk ills to: Rap idly generate th e req uired rep orting sub missions for your b usiness and h elp you understand th e nature and imp lications of wh at you will b e disclosing H elp you p lan, design and imp lement ch anges needed to meet th e req uirements on an ongoing b asis I dentify and address th e wider imp lications to manage th e b usiness imp act of th e Regulations I f you would lik e any furth er information ab out any of th e issues cov ered h ere, p lease do not h esitate to contact us. 5. Accountability: W h ich director will rev iew and sign- off th e data? Contacts Mike Cowan Executive Director F inancial A ccounting and A dv isory S erv ices +44 (0) mcowan@ uk. ey. com Matthew Evans Partner W ork ing C ap ital S erv ices +44 (0) mev uk. ey. com Craig Kennedy Partner T reasury S erv ices +44 (0) ck uk. ey. com Claire Rainsford Assistant Director Regulation and Rep orting S erv ices +44 (0) crainsford@ uk. ey. com 8 New Payment Practices and Performance Regulations 9

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