Changes to payment practices and performance reporting for large businesses

The requirement for large businesses to report on their payment terms and practices first came into force in April 2017. Companies and partnerships within the scope of the regulations have to report twice a year on metrics including the average time taken to pay supplier invoices.

The rules have been amended recently. The changes came into force in April 2024, and will apply to financial years beginning on or after 1 January 2025. For large companies, the information they are required to publish has been expanded to include the total amount of payments which are not made within a payment period and the percentage of invoices that are not paid within a period due to a dispute.

Another important change is clarification over the payment dates to be reported on when supply chain finance (SCF) – where the supplier receives the payment from a finance provider or other third party rather than from the business making the purchase – is used. How the dates are defined will have an impact on businesses’ payment periods. For example, if the supplier receives the full amount due without having to pay a fee or having any amount deducted from the payment, the date the payment is considered made is the date on which the supplier received the payment from the SCF provider. However, where the supplier receives a part payment when SCF is used by the company, the payment date is deemed to be the date on which the finance provider received the payment from the company.

The amendments have also extended the reporting requirements for another seven years, with the new expiry date being 6 April 2031. A further review of the regulations is scheduled to be completed by 6 April 2029 to assess the effectiveness of the updated rules.

Under the rules, the duty to report will apply to large businesses and limited liability partnerships which meet two or more of certain criteria on both of their last two balance sheet dates. The criteria are annual turnover over £36 million, total balance sheet of over £18 million, and over 250 employees. It will apply regardless of whether the entity is public, private or quoted. This also means that if an overseas company has a subsidiary in the UK, that subsidiary may need to comply if it meets the criteria. 

Clare Francis, commercial law expert at Pinsent Masons, said: “Ahead of the new changes coming into force, businesses should review their payment practices guidance to ensure that the guidance is up to date and their reporting is in line with the new legislation. Late payments and long payment terms cause a significant burden on small businesses and transparency around payment practices seeks to bring these into focus for the board and investors. Therefore, accurate and timely reporting is critical.”

The reported information is published on a central government website, giving suppliers a single place in which to access this information and compare company performance. The reporting requirement is set to increase transparency and public scrutiny of large businesses' payment practices and performance, as well as giving suppliers access to the information that they need to make informed decisions about who to trade with, according to the UK government.

A company director or, in the case of partnerships, a designated person, will be required to approve the information in the report before publication. This will ensure that the information provided is accurate. Failure to report, or publishing false or misleading information, will be a criminal offence for which both the company and its directors will be liable to a fine on summary conviction. A director will not be liable if he or she has taken all reasonable steps to ensure compliance.

Francis added: “Payment practices is set to continue as a focus area for the foreseeable future with more regulations incoming. These include a requirement to include the information in companies’ annual reports, as well as the posting on the government’s website. In addition, coming down the track there will also be the introduction of the Fair Payment Code, which has replaced the Prompt Payment Code, and new legislation to publish information relating to retention clauses in qualifying construction contracts.”