Guidance | Duty to Report on Payment Practices and Performance

Digital records help large companies to meet their Duty to Report on Payment Practices

As of October 2017 large companies are required by the UK government to report on their payment practices. The governement issued the following guidance to reporting on payment practices and performance. Having read the Duty to Report update, Document Logistix advocates digitisation strategies to report as accurately and efficiently as possible.

What is Duty to Report?

The duty to report on payment practices refers to a legal requirement for businesses, especially large companies, to disclose details about how they pay their suppliers.

Required information includes details on payment terms, the average time taken to pay invoices, and the percentage of invoices paid on time. The duty aims to promote transparency and fairness in business transactions to help address issues like late payments that can negatively impact small and medium-sized enterprises (SMEs).

By holding companies accountable, this reporting obligation encourages better payment practices to improve cash flow and financial stability within the supply chain.

Background to payment practices

Every year, thousands of businesses experience severe administrative and financial burdens, simply because they are not paid on time. Late payment is a key issue for business, especially smaller businesses as it can adversely affect their cash flow and jeopardise their ability to trade. In the worst cases, late payment can lead to insolvency.

Regulations made under section 3 of the Small Business, Enterprise and Employment Act 2015 (and, for limited liability partnerships (LLPs), the Limited Liability Partnerships Act 2000), introduce a duty on the UK’s largest companies and LLPs to 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.

This guidance is for companies and LLPs who must comply with the statutory reporting duty for payment practices and performance.

Duty to report: Who needs to report?

Which businesses need to report? How are companies required to report defined?

1. The reporting requirement applies to large companies and large LLPs (regardless of whether they are private, public or quoted) which exceed certain size criteria.
2. The information for the reporting requirement should be prepared on an individual company or individual LLP basis, not at a group level.

What are the size criteria for the reporting requirement?

Businesses are in scope of the requirement for a financial year if, on their last two balance sheet dates, they exceeded two or all of the thresholds for qualifying as a medium-sized company under the Companies Act 2006 (section 465 (3)). The thresholds relate to turnover, balance sheet total and average number of employees.

These reporting thresholds are:

• £36 million annual turnover
• £18 million balance sheet total
• 250 employees

Document Records Management and Audits

Records management has been a hot topic sine the General Data Protection Regulation (GDPR) came into force.

Document Logistix flagship product, Document Manager, helps companies to track records. Digitised records are indexed and filed for workflow actions. All activity, including approvals and payment schedules, are logged, easily reported and instantly auditable.

Document Manager overcomes the need for manual intervention; reports can be generated across all departments and for multiple sites. All payment transactions are have time-stammped audit trails.

You can find out more about the Duty to Report on Payment Practices and Performance at Gov.UK

How does digital document management help with Duty to Report on Payment Practices

Digital document management significantly aids compliance with the UK’s duty to report on payment practices by streamlining the process of tracking, storing and analysing payment-related information.

With digital systems, companies can automate the capture of invoice data, payment terms and transaction timelines to ensur accuracy and reduce the risk of human error. These systems also enable real-time monitoring of payment practices, which enables businesses to identify any delays quickly or discrepancies in payments to suppliers.

Moreover, digital document management facilitates easier access to historical payment records, which makes it simpler to compile and submit the required reports. By centralising documents and integrating them with financial systems, companies can efficiently generate detailed reports that meet regulatory requirements.

Digitisation not only ensures compliance with the duty to report but also enhances transparency and accountability, which fosters better relationships with suppliers and supports overall business efficiency by preventing late payment penalties and improving cash flow management.

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Duty to Report on Payment Practices best practices

To comply with the UK’s Duty to Report on payment practices, companies should adopt several best practices:

1. Automate data collection
   Use digital tools to track invoice processing and payment timelines accurately.
   
   
2. Maintain accurate records
   Ensure all payment-related data is consistently updated and easily accessible.
   
   
3. Regular monitoring
   Frequently review payment performance to identify and address issues promptly.
   
   
4. Transparent Communication
   Clearly communicate payment terms to suppliers and adhere to them.
   
   
5. Internal audits
   Conduct regular QA audits to ensure compliance and identify areas for improvement.
   
   
6. Timely reporting
   Submit accurate reports on time to meet legal obligations and avoid penalties.

Consequences of failure to comply with Duty to Report

Failure to comply with the UK’s Duty to Report can lead to several serious consequences:

1. Reputational Damage
   Non-compliance can harm a company’s reputation and lead to loss of trust from suppliers, customers and the public.
   
   
2. Financial penalties
   Regulatory authorities may impose fines or other financial penalties on companies that fail to meet reporting requirements.
   
   
3. Legal action
   Persistent non-compliance could result in legal action and increase financial and operational risks.
   
   
4. Supply chain disruption
   Suppliers may become reluctant to do business with non-compliant companies, which could disrupt operations and lead to increased costs.

If you are interested to discuss, digital records management, please get in touch.