Show me the money! – New rules on disclosing invoice payment practices

UK Corporate Alert | March.30.2015

​The Government has confirmed it intends to require large publicly-traded companies to publish extensive details on their practices and policies for paying invoices.

Why is this happening?

On 27 November 2014, the Department for Business, Innovation and Skills (BIS) launched a consultation on ways to address the late payment of invoices. The Government is concerned that large companies are repeatedly failing to pay invoices when due, and that this is contributing to a failure by small and medium-sized companies ("SMEs") to grow and prosper.

As of July 2014, BIS states that the total amount owed, but not paid, to SMEs is £39.4 billion, and the average amount owed to an SME is £38,200.

Rather than apply fines and sanctions, the Government's proposed approach was originally to require all large companies and limited liability partnerships to make extensive data and metrics on their practices of paying invoices available to the public. BIS published draft regulations that would have applied to a significant range of businesses and imposed quarterly reporting.

The Government's hope was that this regime would provide greater transparency into businesses' payment practices without interfering with their freedom to contract. Suppliers and customers would understand the risks involved in doing business with a particular organisation and could make an informed decision. The process would become self-regulating.

What was the response?

On 2 March 2015, BIS published a summary of the feedback it received to the consultation. This included responses from (among others) the Confederation of British Industry, the Federation of Small Businesses, the British Chamber of Commerce, the British Retail Consortium, two of the UK's major supermarket chains, two of the UK's major high-street banks and several other high-profile retailers.

On 20 March 2015, BIS published a statement outlining its intention for the new regime. The Government intends to lay secondary legislation for the new regime in the next Parliament. If it succeeds, the changes will come into effect in April 2016.

Who will this apply to?

The new regime would apply only to "large quoted companies".

"Large" companies will be defined according to the size criteria in UK companies legislation. At the moment, a company is "large" if meets two or all of the following conditions:

  • Its turnover is £25.9 million or more
  • The assets on its balance sheet amount to £12.9 million or more
  • It has 250 or more employees

BIS has not said what is meant by "quoted". It may use the definition in UK companies legislation, meaning the regime would apply to companies traded on the London Stock Exchange Main Market (or another EEA regulated market), Nasdaq or the NYSE.

The new regime will not apply to limited liability partnerships (LLPs).

What's changing?

When the regime kicks in, large quoted companies will have to disclose specific information to a central digital location. The Government will work together with stakeholders to develop that system. The system will be publicly available.

Information will need to be published half-yearly, rather than quarterly as originally proposed.

Companies will need to disclose copies of their standard payment terms and any changes made to them in the last reporting period. Many organisations already do this as a matter of practice, so for some this change will not be significant.

Alongside this, the following financial information will need to be published:

  • the average time it takes the company to pay invoices
  • the proportion of those invoices that are paid beyond the agreed payment date
  • the proportion of invoices that are paid:
  • the amount of interest the company owes and has paid due to late payment

This represents a curtailment of the volume of data BIS originally proposed for publication, but it is still a significant data set, particularly for very large organisations.

In addition, companies will have to state whether they offer e-invoicing and supply-chain finance facilities, maintain preferred supplier lists and require suppliers to make payments to be on those lists. However, it appears no detail beyond a simple confirmation will be required.

Companies must also give a narrative description of any resolution processes they have in place for resolving any disputes over invoices.

Finally, a company will need to state whether it is a member of a payment code and, if so, which. In tandem with this, the Government has recently updated the Prompt Payment Code to provide for maximum 60-day payment terms. Although payment codes are voluntary, membership is designed to demonstrate a commitment to making prompt payment.

The Government has published a template reporting form, currently available at

What don’t we know?

BIS's has said it will consider whether to mandate reporting on other payment practices, such as reverse-fixed payments (although it does not currently intend to). If it does, the late payment practices regime may well serve as a template for future reporting requirements.

We don't know how long companies will have in order to publish the information. The draft regulations required companies to publish the information on their website within 30 days of the end of the reporting period, but BIS has not said whether this 30-day period applies to publication in the new central repository.

It's also not clear whether BIS still expects companies to publish the information on their websites.

Finally, we need clarity on what periods companies must report on. The draft regulations suggested quarterly reporting periods based on a company's financial year. The final, six-monthly regime will probably also link into the company's financial year, meaning that payment practices disclosures may coincide with publishing financial statements.

How will this affect me and my organisation?

Most (if not all) companies will already hold this information for their own internal accounting and finance purposes. Some finance departments may need to carry out new calculations to reach certain figures, such as average time for payment. In this respect, the new regime may pose an administrative burden, but the greater issue for many organisations will be one of disclosure to the public and their competitors.

Companies listed on the LSE Main Market or another EEA regulated exchange are already required to publish half-yearly financial statements under the Transparency Directive within two months of the half year-end (although this is due to be extended to three months). These companies will need to decide how best to integrate these new requirements into their half-yearly reporting exercise.

Specifically, if the payment practices disclosures are to be made within 30 days, companies will need to decide whether to accelerate the publication of half-yearly financials or to report on payment practices separately.