Last edited 04 Sep 2018

Small Business, Enterprise and Employment Act 2015

In March 2015, the government passed the Small Business, Enterprise and Employment Act, with the intention of obliging large and listed companies to publish detailed information about their payment practices and performance.

The requirement under section 3 of The Small Business, Enterprise and Employment Act 2015 ('the Act') providing a statutory duty for large companies to report on their payment practices came into force on 6 April 2017.

Under the Act, a 'Qualifying Company' needs to publish:

Payment practices and policies relating to relevant 'Qualifying Contracts' (a broad definition), and;
The company’s performance by reference to those practices and policies.

This includes details of its payment performance, detailing, as a percentage, how many invoices they paid:

(i) within 1-30 days
(ii) within 31-60 days, and
(iii) after 61 days.

In addition to the processing and payment of invoices, other details that need to be published include:

The standard payment terms of the company and any which are not standard.
Comment on any disputes relating to the payment of invoices.
A statement as to whether the Qualifying Company’s payment practices and policies provide for the deduction of a sum from a Qualifying Contract.

Companies are required to file their reports every six months, as opposed to quarterly, which was seen as too onerous under the initial reporting proposal. Some companies suggested annual reporting, but it was considered that this would not provide suppliers with timely accounts, potentially defeating the object of the regulations.

The first reporting period in a financial year is six months from the first day of that financial year and the second reporting period is for the remainder of that financial year.

Although there is no definition of a 'large' company under the Act, the Minister of State for Business, Enterprise and Energy has confirmed that there has been support for adopting the Companies Act 2006 definition of a large company.

This was mirrored in the draft regulations on the Reporting on Payment Practices and Performance Regulations 2017, published in December 2016. The draft regulations state that a 'Qualifying Company' will be determined with reference to turnover, balance sheet and average number of employees:

An Annual turnover exceeding £36m.
A balance sheet total exceeding £18m.
An average number of employees exceeding 250.

The regulations apply to a company for every financial year in which it is a Qualifying Company, however, it cannot be a company in its first year of trading.

Larger companies will need to comply, or risk being fined. The results will be publicly available and it could be embarrassing for large companies to reveal ongoing disputes or poor payment practices. It also presents an opportunity to showcase how good practice compared to their competitors, which make them more attractive to potential business partners.