New rules came into effect in the UK on 6 April 2017 that require many companies to publish reports on their payment practices. The government's aim is to improve the perceived poor record of slow payments to suppliers and subcontractors that plague many industries, including the ICT sector.
Every little helps, I suppose, but the new regulations are really only a gentle nudge in the right direction whereas a firm shove could have had a more immediate impact. For many years, the government has insisted in its own ICT contracts that invoices be paid within 30 days – and, as an SME support measure, it's also been a policy that large ICT providers to government should commit to pay subcontractors within 30 days as well. But commendable though that is, to my knowledge there has never been a policy of enforcement of that approach.
The new regulations are directed at large businesses in the UK, but overseas businesses with eligible UK subsidiaries may also be affected. Affected businesses will have to publish information in relation to their supplier contracts, payment terms, applicable dispute resolution procedures, and payment lead times. Failure to comply with the regulations is a criminal offence, and both an affected business and its directors may be liable.
Broadly speaking, a business will be covered by the regulations and required to publish a report if (1) it is incorporated or registered in the UK and (2) on both of its last two balance sheet dates it has exceeded at least two of the thresholds below:
- over £36 million annual turnover
- over £18million balance sheet total
- over 250 employees
But the regulations stop short of mandating (or even suggesting) target payment terms – which could have had a material effect on the cash flow of ICT providers down the chain of supply.
The main steps that businesses in the ICT sector should now take are:
- acquaint themselves with the new regulations and assess whether they or members of their group need to comply with the reporting requirements. Affected businesses do not need to publish anything straight away, but those with financial years that start on 6 April 2017 will be among the first required to publish, with reports due on or before 4 November 2017;
- begin updating processes and policies to identify qualifying contracts necessary for inclusion in their payment practices report;
- consider the approval process for the report prior to a named director or designated member signing it;
- implement processes to allow easy compilation of data – e.g., to make it easier to track the date of receipt of invoices from suppliers and other information needed for the report.
While the new regulations are primarily an attempt to create a more responsible payment culture in certain key sectors, they also extend the trend towards greater corporate transparency. The UK already has, for example, the Modern Slavery Act 2016 and other regulations intended to enhance the consistency and comparability of certain non-financial information disclosed by large businesses.
To that end, on the same day a mandatory gender pay reporting regime also came into effect. The UK has had a voluntary gender pay gap reporting regime since 2015, but this has largely been viewed as unsuccessful, with very few employers publishing data about their gender pay gap. Under the new mandatory regime, large employers (of above 250 employees) will need to publish (on their website and a designated UK government website) annual reports containing detailed data on their gender pay gap.