Duty to Report on Payment Practices and Performance in Construction
Introducing the new payment performance reporting legislation
From 6th April 2017, the Government is making it compulsory for large businesses to report on their payment practices, policies and performance in an effort to achieve the following objectives:
- Increase transparency and public scrutiny of large businesses’ payment practices and performance.
- Give small business suppliers better information so they can make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments.
Following the 2011 amends to the UK Construction Act in 2011, this new legislation goes further to help tackle late payments in Construction and other industries and encourages improved construction financial management. It supports those firms that are already a signatory of the Prompt Payment Code (PPC) and the Construction Supply Chain Payment Charter (CSCPC), these businesses being those that set the standards for best payment practices and are pushing the industry to achieve standard payment terms of 30 days by 2025.
We’ve created an easy-reference PDF Compliance Guide for you to download
Large businesses must publish information about their payment practices and policies in relation to contracts which are for goods, services or intangible assets (including intellectual property) and connected to the carrying on of the organisation. Other kinds of contracts, notably business to consumer contracts and financial services contracts, will not be covered.
Contracts will also have to have a significant connection with the UK to be covered by the duty to report.
A company director or designated person will be required to sign off the report.
Which Construction firms will be affected by the new Duty to Report legislation?
Whether in the built environment or not, businesses required to comply with this new legislation are individual companies – private, public or quoted – and limited liability partnerships (LLPs) which exceeded two or all of the following thresholds on both of their last two balance sheet dates:
- More than £36 million annual turnover
- More than £18 million balance sheet total
- More than 250 employees
For parent companies and LLPs, the size of the group they head determines whether they qualify as small or medium-sized under the Companies Act for accounting purposes. Parent companies or LLPs which head large groups will only be required to report if they qualify as large (as per the definition above) in their own right.
What will these larger Construction businesses need to do to comply?
Large companies and LLPs will be required to publish information about their payment practices and performance twice per financial year on a Government web service. They will be required to provide:
Written descriptions of:
- Their payment terms – including standard contractual length for payment of invoices, maximum contractual payment period and any changes to standard payment terms and whether suppliers have been notified or consulted on these changes.
- Their process for dispute resolution related to payment.
- The average time taken to pay invoices from the date of receipt of invoice.
- The percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days, and more than 60 days.
- The proportion of invoices due within the reporting period which were not paid within agreed terms.
A tick box on whether:
- The organisation offers e-invoicing.
- The organisation offers supply chain finance.
- The organisation’s practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list, and whether they have done this in the reporting period.
- The organisation is a member of a payment code, and the name of the code.
Reporting dates will be aligned to a business’ financial year, with the first report due 30 days after the end of the first six months and the second due 30 days after the end of the financial year.
The main enforcement of the duty to report will be through ‘behavioural change’ mechanisms that are intended to ensure compliance and encourage organisations to improve their payment practices. These mechanisms include:
- ‘Naming and shaming’ public pressure through the open nature of the report.
- Companies, suppliers and other third parties comparing reports and publicising the information.
- Good payment behaviour by responsible companies leading the way, encouraging other businesses to seek to match the best.
Breaching reporting requirements – from non-compliance or publishing a false report – is a criminal offence under the Companies Act 2006. Companies and directors that breach reporting requirements face prosecution and a fine.
How can Open ECX help improve your compliance and reputation for timely payments?
By providing solutions that streamline construction payment processes and encourage best practice, Open ECX can improve your supply chain collaboration, payment workflows and payment-related reporting whether you’re a contractor, subcontractor or construction industry supplier.
Open ECX’s eHub for example, automates procure-to-pay (P2P) and order-to-cash (O2C) business transactions, providing complete visibility from purchase order to invoice. The eHub incorporates clever document mapping to track and audit every business transaction, while intuitively matching electronic paperwork to avoid errors, save time and costs, and ensure correct timely payments.
Meanwhile, Open ECX’s WebContractor solution provides an online cloud-based portal into which subcontractors can confidently upload their payment applications in the knowledge that a definitive, automated workflow is in place for handling the processing, calculations, reconciliation, approvals and payments of those applications. Any issues and outstanding costs are flagged and quickly resolved through a set procedure, allowing speedy dispute resolution and prompt payment approvals, smooths cash flow and improves trading relationships.
The optional digital payment functionality then comes into play to allow provision of a holistic, end-to-end automated payment process that reduces the likelihood of payment disputes. Provided by Mastercard through Optal and fully integrated with Open ECX’s WebContractor solution, the service further speeds up the payment process by providing secure, online card payments directly to the subcontractor.
No matter where you sit in the construction supply chain, construction procurement software and construction payment software from Open ECX improve visibility, control and compliance while ensuring your workflows and procedures are clearer, more easily reportable… and the envy of your competition.