Consultation outcome

Government response to the Amendments to the Payment Practices and Performance Regulations 2017

Updated 22 November 2023

Introduction

Government recently carried out a statutory review of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (“the Regulations”).

The review concluded that the policy remains appropriate. There is an ongoing need to ensure greater compliance in terms of prompt payment and to increase awareness of the payment performance of large businesses. Having considered alternatives that may impose less regulation, the review concluded that the Regulations were the appropriate mechanism to address the policy objectives.

Following on from this we issued a consultation running from 30 January 2023 to 28 April 2023, including the specific question as to whether the Regulations should be extended beyond their current expiry date of 6 April 2024. As part of this, we consulted on other potential amendments and improvements to the Regulations resulting from the views expressed by those who responded to the recent review. The response to this consultation forms part of the wider payment and cash flow review.

Executive summary

In response to this consultation government will take forward the following actions, amending the Regulations such that:

• the Regulations will be extended beyond the sunset clause date of 6 April 2024 for up to 7 years, with a review to take place after 5

• qualifying businesses will be required to report the total value of payments due in the reporting period that have not been paid within agreed terms, alongside existing requirements to report on the total volume of payments due

• the Regulations will include an effective method of reporting the proportion of disputed invoices whilst still including them as late payments in overall payment time data

• the payment dates to be reported when supply chain finance is used will be made clearer

• where relevant, reporting must include information on standard retention payment terms and retention payment performance statistics for qualifying construction contracts

• we support external analysis and commentary by responding to stakeholder requests to require businesses to include sector identification in their payment reporting

The Regulations – background

Regulations made under sections 3 and 161 of the Small Business, Enterprise and Employment Act 2015 (and for limited liability partnerships (LLPs), made under section 15 and 17 of the Limited Liability Partnerships Act 2000), introduce a duty on the UK’s large companies and LLPs to report twice in a financial year on their payment practices, policies and performance for financial years beginning on or after 6 April 2017.

The legislation governing the reporting requirements for companies are the Reporting on Payment Practices and Performance Regulations 2017 and, for LLPs, the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (“the Regulations”).

The information must be published through a web-based service provided for the purposes of the Regulations by or on behalf of the Secretary of State which is available to the public.

The objectives of the reporting requirement are to:

• increase transparency and public scrutiny of large businesses’ payment practices and performance

• provide small business suppliers with better information so they can make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments

Businesses which need to report

The reporting requirement applies to companies and LLPs (regardless of whether they are private, public, or quoted) which exceed certain size criteria, as outlined below. The companies and LLPs in scope of the requirement are referred to in the Regulations as “qualifying companies” and “qualifying LLPs”.

Size criteria for the reporting requirement

Businesses are in scope of the requirement for a financial year if, on their last 2 balance sheet dates (or, if only in their second financial year, on their last balance sheet date before that financial year), they exceeded 2 or all of the thresholds for qualifying as a medium-sized company under the Companies Act 2006 (section 465(3)); in the case of LLPs, as applied and modified by regulation 26 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008). The thresholds relate to turnover, balance sheet total and average number of employees.

At the time of publication, these general thresholds are:

• £36 million annual turnover

• £18 million balance sheet total

• 250 employees

A parent company or parent LLP is only required to report if, on its last 2 balance sheet dates (or, if only in their second financial year, on their last balance sheet date before that financial year), that business: (i) exceeds 2 or all 3 of the general thresholds; and (ii) the group it heads exceeds 2 or all 3 of the group thresholds for qualifying as a medium-sized group in (section 466(4) of the Companies Act 2006; in the case of LLPs, as applied and modified by regulation 26 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008).

Reporting obligations

Businesses in scope of the reporting requirement must prepare and publish information about their payment practices and performance in relation to qualifying contracts^{[footnote 1]}, for each reporting period in the financial year. The information for each reporting period must reflect the policies and practices which have applied during that period, and the business’ performance for that period.

The report must be published on the web-based service provided by government within 30 days, beginning with the day after the last day of the reporting period to which a report relates.

The report must contain the information required by the Regulations and must be approved by a director of the company where the reporting business is a company, or a designated member where the reporting business is an LLP, before it is published. The name of that director or designated member should be included in the report.

Information required in relation to qualifying contracts.

Statistics on:

• the average number of days taken to make payments in the reporting period, measured from the day after the date of receipt of invoice or other notice to the date the cash is received in full by the supplier

• the percentage of payments made within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and in 61 days or longer (note: for the purposes of counting time here, day 1 is the day after the date on which the invoice or other notice is received by the qualifying business)

• the percentage of payments due within the reporting period which were not paid within the agreed payment period (the period in which a company is contractually required to pay a sum)

Narrative descriptions of:

• the business’s standard payment terms in qualifying contracts, which must include o the standard contractual length of time for payment of invoices:

  • any changes to the standard payment terms in the reporting period

  • how suppliers have been notified or consulted on these changes

  • a description of the maximum payment period specified in a qualifying contract which the qualifying company has entered into during the reporting period

  • an explanation of the business’ process for resolving disputes related to payment under a qualifying contract

Tick box statements about the business’ payment practices and policies in relation to qualifying contracts:

• whether supply chain finance is available to suppliers (that is, an arrangement of under which a supplier can receive payment of an invoiced sum from a finance provider before the end of the payment period, with the business paying the invoiced sum to the finance provider)

• whether suppliers are offered e-invoicing (the electronic submission and tracking of invoices)

• whether the business is a member of a code of conduct or standards on payment practices, and, if so, the name of the code

• whether the business’ practices and policies allow deducting of sums from payments as a charge for remaining on the business’ list of suppliers or potential suppliers

The sanctions if a business does not comply

It is a criminal offence by the business, and every director of the company or designated member of an LLP, if the business fails to publish a report containing the necessary information within the specified filing period of 30 days.

Anyone who knowingly or recklessly publishes or causes to be published for the purposes of the Regulations a report, or any information or makes, for any such purpose, a statement which is misleading, false, or deceptive commits a criminal offence. This applies to businesses and individuals.

These offences are punishable on summary conviction by a fine.

Consultation responses to the proposals

In total there were 137 responses from individuals and organisation which were received in combination through GOV.UK and the Payment Performance Reporting Mailbox. Overall, 131 different businesses, individuals and associations were represented in the responses. The majority of respondents were responding on behalf of small businesses, including a number of representative bodies. There were also some large businesses and individuals among respondents. A wide variety of sectors were represented, spanning construction, manufacturing, and a variety of service sectors. 

Q1

Our proposal

We asked: Do you agree that the Regulations should be amended to extend their effect beyond 6 April 2024?

What you told us

There were 135 respondents that answered our question on extending Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017. Of the 135 that answered all agreed with our proposal to extend the Regulations.

Overall, respondents provided positive feedback on the impact of the Regulations to date and want to see them extended. Respondents believe that the Regulations have helped drive down payment times in the UK. Stakeholders agreed that through increasing transparency of large businesses payment performance, large businesses have begun self-policing their payment times to ensure that their performance is in line with other businesses within their industry. As reporting payment performance data is then open to the public for viewing, reporting businesses with poor records can be seen as outliers. Those that responded to the consultation believed that the Regulations had been particularly important throughout the pandemic and recent economic issues with inflation and that without the Regulations’ payment times may have substantially lengthened. Payment performance remains an important issue for small businesses and the reporting offers an insight into the payment practices of their potential customers allowing them to make more informed decisions. There were concerns expressed that small businesses could be exposed to increasing payment times if the Regulations were allowed to expire.

The work of organisations such as Good Business Pays, which uses the collected payment reporting data to produce league tables, drawing attention to the worst performing businesses, was praised by respondents. Many respondents wished to see league tables of the best and worst performers to be continued to be published. Without the Regulations organisations such as Good Business Pays would find it much harder to gather the information they need in order bring attention to poor payment performers.

Next steps

Given the overwhelming support in favour of extending the Regulations we will extend the Payment Practices and Performance Regulations 2017 beyond their current sunset date of 6 April 2024. The Regulations will be extended for an additional 7 years from April 2024 with a review to take place after 5.

Q2

Our proposal

We asked: Do you agree that the Regulations should be amended so that a qualifying business is required to report the total value of payments due in the reporting period that have not been paid within agreed terms?

What you told us

Of the 133 respondents to this proposal, 120 either Strongly Agreed or Agreed and 10 respondents either Disagreed or Strongly Disagreed with the proposal to add a metric highlighting the total value of invoices not paid within agreed terms metric to the reporting regulations.

Respondents are supportive of our proposals to introduce a new value-based metric into the reporting requirements. Respondents believe that this metric will provide small businesses with a better view of the overall scale of a payment performance issue and the true performance of a reporting business’s payment performance. It will provide additional context about the payment performance of reporting businesses. By increasing transparency small businesses should be better placed to make decisions about how they enter contracts with businesses.

Some respondents were concerned about businesses potentially “gaming the system” using this new metric. There were concerns that reporting businesses may focus on paying larger invoices promptly, with the payment of smaller invoices potentially being de-prioritised. Should this be the case, there would be a disproportionate and detrimental impact on smaller businesses which, by their nature, will tend to be the suppliers with the greater proportion of smaller invoices. However, given the proposal, as set out in the consultation, is to add a value reporting requirement alongside the existing volume reporting requirement, we consider that the introduction of the metric should have little or no distortive effects. By having these 2 metrics running concurrently businesses should be incentivised to maintain good performance on both volume and value of invoices. However, we will continue to monitor the impact of the change.

There were also some concerns expressed that, under the current system of only reporting the volume of unpaid invoices, performance can be distorted as small businesses are concerned that large businesses may pay the smallest invoices, bringing average payment times down, while leaving larger invoices unpaid for longer without having a detrimental impact on currently reported performance data. 

There was also some concern regarding an increased administrative burden and cost by having to collect data on the value of their invoices. However, many respondents highlighted that, given improvement in accounting technology, the resources available to large businesses and existing practices that this new metric would not be too onerous to report. There was a view that this kind of information is already being collected and therefore the increase in burden will be minimal.

Our next steps

The Regulations will include an additional metric that would see businesses report on the value of invoices that have not been paid under agreed terms, alongside existing volume reporting, to improve transparency. 

Q3

Our proposal

We asked: Do you agree that it should be a requirement for a reporting business to include their payment practices and performance reports in their directors’ report?

What you told us

There were 126 respondents to this question. Of the 126 who responded, 107 Strongly Agreed and 14 Agreed with only 9 respondents disagreeing.

Overall respondents were supportive of proposals to make it a requirement for reporting businesses to include payment performance in their directors’ report. Awareness of the payment performance portal is low according to our respondents. Respondents want to see an increase in the visibility of large business’s payment performance to increase this wider awareness. Respondents highlighted that the introduction of payment performance reports into directors’ reports should help increase awareness and transparency around large business’s payment performance. 

Of those that disagreed with the proposals, some respondents stated that the proposal would increase the administrative burden through adding to the report’s content. Respondents felt that, given the existence of the payment performance portal where businesses can already look up payment data there is little additional benefit to having the data reported twice in another setting. However, there were other respondents considered that because the information is already being collected and published, any additional burden would be low.

Since the publication of this consultation, the government has begun a Non-Financial Reporting review. As such, the content of business’s annual report, including the director’s report, is being reviewed in the round. 

Our next steps

We will work with teams across government and await the outcome of the Smart regulation non-financial reporting review before deciding how to proceed.

Q3a

We asked: Do you agree that making it a requirement for a reporting business to include their payment practices and performance reports in their directors’ report is a sufficient additional requirement for a reporting business?

What you told us

Overall, stakeholders disagreed that our proposal to make it a requirement for businesses that report under the Payment Practices and Performance Regulations to include performance reports within their directors’ report goes far enough. Ninety-nine respondents out of 130 either Strongly Disagreed or Disagreed that our proposals went far enough, while 25 respondents either Strongly Agreed or Agreed. The responses highlight an appetite amongst many small business stakeholders to go further on increasing measures to improve payment performance transparency.

Respondents to the consultation consistently asked for better compliance and enforcement of existing Regulations, believing that there are large businesses that are not reporting payment performance data when they should be. Respondents want to see more action taken against those that do not submit their payment performance data under the Regulations.

There were also calls from a small number of respondents that wanted to see other action taken. After seeing the success of the Groceries Code Adjudicator on encouraging better payment practices from supermarkets in line with the code, some respondents called for payment performance to be made part of the Corporate Governance Code, overseen by the Financial Reporting Council, or the introduction of more sector specific Codes aimed at improving payment. Such a move could help codify and encourage better payment culture. However, a voluntary Prompt Payment Code already exists which businesses can sign up to and is designed to encourage faster payment times- in the first instance, this should be made as effective as possible.

There were also suggestions from respondents to take firmer action to bring down payment times through legislating for absolute maximum payment terms. Legislation for maximum payment terms has been introduced in other Western European countries. However, there is no clear evidential link between such legislation and lower payment times. Overall, bringing down payment times requires a broad package of measures. Additionally, there is already a maximum payment time requirement under law in the Commercial Debts Act. If a payment date is agreed, it must usually be within 30 days for public authorities or 60 days for business transactions. A longer period than 60 days can be agreed, but it must be fair to both businesses. If a payment date is not agreed, the law states the payment is late 30 days after either the customer gets the invoice, or the supplier delivers the goods or provide the service (if this is later).

There were also respondents that felt payment performance data should be more accessible and visible. The government agrees that more can be done to increase public awareness of payment performance data – for example, increase awareness of the Payment Performance Portal and make it more user-friendly – and that through increased visibility there will be increased scrutiny of large businesses payment times which should result in better performance.

As with other proposals, respondents, including those that agreed with additional measures, thought that an increase in reporting requirements will increase the administrative burden on a business. They are keen for the government to ensure that any additional measures will bring a sufficient benefit so that the additional burden is considered worthwhile. Some respondents were unsure whether the increased burden and cost of additional reporting would outweigh any benefits from newer measures.

Our next steps

Whilst there is a view amongst respondents to go beyond including payment performance in directors’ reports including specifying a function for audit as part of payment reporting, this needs to be balanced against a need to keep additional administrative burdens to a minimum. At this stage, government considers that the additional costs associated with further measures beyond those proposed here would not be justified.

Q4

Our proposal

We asked: Do you agree that the Regulations should be amended to clarify payment dates used for reporting when supply chain finance is used?

Of the 127 respondents to this question only 1 respondent Disagreed with our proposals and 112 either Agreed or Strongly Agreed with them.

The Regulations currently state that a payment is made when it is received by the supplier, or, if there is any delay in the sum being received for which the qualifying business is not responsible, when it would have been received without that delay. No provision is currently made as to the impact of supply chain finance arrangements on this counting of time.

This presents a risk that a reporting business using supply chain finance could potentially report achieving a higher percentage of payments made within agreed terms (that is, when the supplier is paid by the third party rather than when the reporting business reimburses the third party), while their suppliers may be forced to bear the cost of any fee for receiving monies owed to them within agreed terms.

Our next steps

We will amend the Regulations to provide that:

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 made will be the date on which the supplier received the payment from the supply chain finance provider.

If the supplier does not receive the full amount or has to bear the cost of any fee for the supply chain finance, the date the payment is made will be the date on which the supply chain finance provider received the payment from the qualifying business (discounting any delays outside of the qualifying company or LLP’s responsibility).

In all other circumstances, the date the payment is made is the date when it is received by the supplier (discounting any delays outside of the qualifying company or LLP’s responsibility).

Q5

Our proposal

We asked: Do you agree that the Regulations should be amended to consider disputed invoices as a separate entity, to improve the accuracy and transparency of the reporting data.

There were 130 respondents to this question. Ninety-five respondents Strongly Agree, with 11 Agreeing. Conversely, 7 respondents either Strongly Disagreed or Disagreed.

Respondents that agreed believed that this would increase visibility and transparency around payment practices more broadly. This would help businesses make more informed decisions when entering contracts with a reporting business. Respondents pointed out that disputes tend to be legitimate, but also recognise that there are rare instances of businesses using disputes to manage their own cash flow. A large business could raise a dispute to delay payment, refusing to pay before the dispute is resolved. Respondents felt that by making it a requirement to report the number of disputed invoices, businesses would be encouraged to resolve disputes more quickly.

Respondents also highlighted that disputed invoices should still be reported in the overall late payment reporting metric, as is the case now, as well as being visible as a separate metric, as disputed invoices are also late payments. Respondents also highlighted that current data does not capture underpayments, and a separate measure to make it a requirement to report underpayments could be useful to businesses that are concerned about entering into business with serial underpayers, although this measure would be challenging to implement effectively.

As with other proposals, some respondents said that reporting on disputed invoices would increase administration and costs associated with reporting. Respondents highlighted that businesses might not have an existing process to track disputes and raised concerns about defining a dispute. Each business might have a different approach to identifying disputes which could cause confusion and inconsistent reporting. There may also be challenges in ensuring only genuine disputes are reported. However, in reporting this metric we are ensuring increased transparency about reporting business’s approach to paying invoices, including their tendency to dispute an invoice on any grounds. Each business will not have an identical approach, and that is in part what this metric would show.

Respondents also pointed out that this measure could penalise a business raising genuine disputes due to issue from the supplier. The fear is that by specifically reporting disputes in payment performance, a business could be perceived negatively when in fact the disputes are legitimate. This may be true, but where it is the case, it would seem to make sense to encourage businesses to resolve disputes earlier.

Our next steps

The Regulations will include an effective method of reporting the proportion of disputed invoices whilst still including them as late payments in overall payment time data.

Q6

Our proposal

We asked: Do you agree that the Regulations should be amended so that payment practice and performance reports should include information on the standard retention payment terms in qualifying construction contracts?

There were 122 consultation responses to this question. Ninety-two responses strongly agreed that information on standard retention terms should be included in payment practice and performance reports, with an additional 11 respondents agreeing these should be included. Seven respondents either disagreed or strongly disagreed with the inclusion of this information.

There is strong support from respondents to the proposal to include information on the standard retention payment terms in qualifying construction contracts. Retaining a percentage of the value of a construction contract, as a form of surety, is an established practice in the construction sector. However, it is one that creates cashflow problems for smaller businesses within the construction supply chain, is open to non-payment and other forms of abuse, and creates a risk that retentions are never paid due to insolvency. It is also a practice that is not within the scope of the current reporting regulations.

Next steps

We will introduce this proposal to help improve transparency of retention payment terms, to provide small businesses with further information about the payment practices and performance of firms they are considering doing business with and provide an incentive for larger firms to improve these practices.

Q7

Our proposal

We asked: Do you agree that the Regulations should be amended so that payment practice and performance reports should include statistical information on retention payments?

There were 118 responses to this question. Ninety-two respondents strongly agreed that the Regulations should require firms within scope to provide statistical information on retention payments, with a further 13 respondents agreeing that they should. Eight respondents disagreed or strongly disagreed with this proposal and did not know.

There is strong support from industry to amend the regulations making it a requirement for reporting businesses to report statistical information in relation to retention payment performance, as they are required to do in relation to other types of payment. Whilst a specific proposal in relation to the type of information to required was not consulted on, potential examples could be the value of retention payments withheld as a proportion of contract value, the percentage of retentions paid on the date when they should be released, or the percentage of retentions unpaid 30 days after they were due to be released.

Next steps

We will work to include the statistical reporting of retention payment performance within the Regulations. The government will continue to work with the industry to explore what form of statistical reporting could be captured, taking account of the value of this information for businesses in the supply chain, as well as the cost and administrative challenges of obtaining and reporting on this information.

Impact assessment

A consultation impact assessment was published alongside this consultation, which set out an analysis of the costs and benefits of the regulations based on available evidence.

The consultation document asked several questions (below) about the evidence base. Responses to those questions are factored into the development of the final impact assessment. 

Question 8: How many hours does your business spend and which staff are required (please give an indication of hours by level of seniority) in order to comply with the Reporting on Payment Practices and Performance Regulations 2017?

Question 9: What does this cost your business in terms of pay for each level of seniority?

Question 10: What (if any) additional costs did your business incur (beyond staff pay) in complying with the Reporting on Payment Practices and Performance Regulations 2017?

Our overall response

It is clearly set out by respondents to this consultation that businesses believe there is a benefit to the Payment Practices and Performance Regulations and that, since their introduction in 2017, businesses believe that they have gone someway to helping improve payment performance in the UK as well as providing businesses with better information.

While the regulations have helped, there is also an opportunity to improve them to make them more effective and through this consultation there is support for us to work to introduce new measures. These measures will include a new ’value’ metric and a ‘dispute’ metric to help improve payment practice transparency and awareness across the UK. Following suggestions from respondents we will also develop a sectoral self-declaration which reporting businesses will use to report the sector they work within. This sectoral identification will make it easier for the government and external analysts to develop reports and identify areas for further improvement. The hope is that these new measures will help reduce payment times even further and help business to make better decision.

The Department for Business and Trade will ensure that the Payment Performance Regulations are extended beyond their existing sunset clause of 6 April 2024, also introducing the other measures outline here. As part of the legislation, we will be including a clause to ensure that the regulations are reviewed again in 5 years’ time.

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1. Page 9, Guidance to reporting on payment practices and performance: https://www.gov.uk/government/publications/business-payment-practices-and-performance-reporting-requirements; and see regulation 6 of the Reporting on Payment Practices and Performance Regulations 2017 and regulation 3 of the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, read with section 3(2) of the Small Business, Enterprise and Employment Act 2015. ↩