Is greater transparency coming for UK payment practices?

March 24, 2017 Matthew Stammers

 

From April this year there’s likely to be a renewed media spotlight on how British based companies pay their suppliers with the introduction of new payment reporting regulations. To discuss this key issue for UK business we brought together eight of the UK’s largest companies to explore how they intend to meet the new requirements.

The new ‘Duty to Report on Payment Practices and Performance Regulations’

On 6 April 2017, the new ‘Duty to Report on Payment Practices and Performance Regulations’ will be introduced in the UK. The Regulations require all large companies to report twice a year on their payment practices.

 

The impact of the Regulations is significant, affecting about 7,000 UK HQ’d businesses or UK registered subsidiaries and are arguably some of the strictest from a global regulatory perspective in terms of requiring companies trading in the UK to be transparent about their payment practices.

 

The seven key ‘Duty To Report’ themes

During the discussion seven clear themes emerged centring on firstly how companies are struggling to interpret the requirements and moving on to how they will undertake the reporting and manage any potential wider media ramifications.

 

The seven key themes were as follows:

 

1. “It’s not even a case of comparing apples and oranges, but comparing bananas, pineapples and whatever other fruit you can think of as well”

One of the key concerns in Duty to Report (DTR) is how we arrive at a consistent basis for reporting where companies with similar payment practices are seen in a similar light. Delegates expressed concern about how they present payment statistics and how they are viewed in comparison to their peers. The ‘apples vs. oranges’ quote made by one of the delegates represented a great summary in terms of the feeling of many in the room.

 

2. “There’s no prize for coming first”

One of the primary rules of business is to get there first. However, the view from delegates is that there appears to be very little incentive to report first and indeed, the risks appear to strongly outweigh the benefits. The first large company to report risks considerable media attention and lacks the context of any benchmarked peers. The sense from the room appeared to be ‘how long can we wait before we have to report’ to be able to assess the response from other companies reporting.

 

3. “The reporting notes are very important”

While the statistics section sets out what a company’s payment practices are, the advice is that all companies should make use of the Notes section to explain why they have those practices in place and how they provide reasonable payment to suppliers.

 

4. “Regulations and Supplier Relationships require context”

The DTR Regulations appear to make little allowance for outlining how different sizes and types of suppliers might reasonably be paid under different terms. It runs counter to the legislative purpose in that companies might potentially end up disadvantaging small suppliers to provide better reporting statistics.

 

5. “Companies are at different stages on the journey”

Some of the companies and people in the room have been working on a DTR strategy for the last two years. Others are just setting out on the journey to understand how best to meet the reporting requirements. Whatever stage of the journey companies are on, it is clear that there is a lack of clarity in how the reporting should work and in some cases whether companies will be able to report in time given their diverse system landscape and the lack of clarity from Government on the precise requirements.

 

6. “I don’t want DTR to inaccurately reflect my commitment to the PPC”

It’s worthwhile understanding that the Prompt Payment Code and the Duty to Report are two clear, different and distinct things. The PPC is a voluntary code, which espouses best practice for supplier payments and against which companies voluntarily agree to sign up to and abide by. The Duty to Report on Payment Practices and Performance is a set of Regulations made under Section 3 of the Small Business, Enterprise and Employment Act 2015. It is a mandatory requirement to report with criminal consequences for companies that do not report, but which fit within the identified criteria. The link or crossover is that the DTR brings perceived transparency to a company’s reported payment practices and they are then open to be compared against the voluntary PPC requirements.

 

7. “Creating a media plan is as important as developing the DTR reporting strategy”

One of the observations shared in the room is that senior executives often tend to focus on the operational aspects of projects and issues that affect their companies. In the case of the introduction of regulations like DTR and the potential associated media spotlight, it was shared that being conscious of this, and taking the time to develop a media strategy can be as important as developing the physical reporting strategy.

 

Summary

We have yet to see whether the introduction of these Regulations will achieve the stated objective of providing greater clarity on company payment practices and encouraging appropriate payment behaviour.

 

What is clear is that large companies are concerned about how their reporting of their payment practices will be perceived and they are concerned that a simplified set of reporting statistics in no way represents the commercial reality of operating complex businesses in a globally competitive marketplace.

 

Whether this concern is justified will be revealed over the coming months as the first companies start reporting and we will see whether the media spotlight is once again on the payment practices of UK Plc.

 

Notes

The Government’s guidance on the ‘Duty to Report on Payment Practices and Performance’ can be found here

 

The undertaking to which signatories sign up under the Prompt Payment Code can be found here

 

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