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New payment practice legislation: Help or hindrance?

The time and costs associated with the extra administration of compliance with new legislation can be a real issue for businesses.  

There is bound to be both of these for those companies that will be caught by the new duty to report on payment practices, heralded by section 3 of the Small Business, Enterprise and Employment Act 2015 which comes into force on 26 May.

So if you’re one of the construction industry’s prompt payers, then having to report on your website as to how you pay your suppliers might seem like an unnecessary burden (although government will tell you that it’s your chance to celebrate your performance).  

But if you are one of the UK’s suppliers who, together and across the economy, shoulder the weight of some £41.5bn in late payment, the new access to information about your potential customers could sound like a very good thing.  

Provided, of course, that you are actually in a position to pick and choose who you do business with once you have comparable data.

What does Section 3 do?

Section 3 will allow the secretary of state to introduce regulations requiring certain types of companies to publish information about their payment practices and policies for business contracts for goods, services and intangible assets (like intellectual property rights) and their performance by reference to those practices. 

It’s aimed at improving corporate payment culture by requiring transparency and holding bad payers to account.

“The exact requirements will depend upon just who is the secretary of state on 26 May”

What the exact requirements will be will depend upon just who is the business secretary on 26 May and what the implementing regulations look like. 

Of course, we won’t know this until after 7 May. 

However, the present government has indicated what it intends to do if re-elected, having already consulted on possible requirements. 

The blue plan

If it gets back in power, the government says it would put the duty on large companies only: that’s large quoted companies and large unlisted companies, rather than the original proposal to cover all quoted companies. 

The duty would apply from April 2016 and require the targeted companies to report on a half-yearly basis on matters such as standard payment terms; average time taken to pay; proportion of invoices paid in 30 days or less (and between 31-60 days and beyond 60 days); and the proportion paid beyond agreed terms, as well as a number of other things.

In my view, the aims are positive.

“If back in power, the government says it would put the duty on large companies only”

But to work effectively, the requirements will need to be clear and feasible to deliver on. 

Any large corporation may have a portfolio of contracts with a range of suppliers so saying what is ‘standard’ might not be as straightforward as it sounds. 

Some issues remain to be clarified too: for example, how does this all relate to retentions? Will criminal sanctions apply? 

In time, tailored industry guidance could turn out to be a great help.

Kirstin Bardel is counsel, professional development lawyer at Ashurst

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