Cast your mind back to 6 April 2017. It was the day Duty to Report came into effect. Under the legislation, large UK companies and LLPs now need to report, on a half-yearly basis, on their payment practices, policies and performance.
The legislation was designed to tackle the late payment culture in the UK. To give you some idea of the scale of the problem, 90% of finance teams say they regularly get chased by suppliers for payment and it took the average company 57 days to pay any supplier last year. Half of all SMEs say they are routinely paid late and there’s an estimated £26 billion owed. It means it’s a big problem for businesses and you’re probably affected by it in yours. It adversely affects liquidity, it restricts the ability to invest and there’s an additional cost burden involved, all of which holds back a company’s ability to grow.
Recently we hosted a round table discussion with ICAEW and Oliver Kidd, Senior Associate from Stevens & Bolton LLP. We looked at the impact of the legislation and what happens next. Here are some of the highlights:
Mind the gap
So far there appears to be a big discrepancy between the expected number of reports and the actual number of reports currently available. Early indications suggest around 15,000 reports are due to be submitted by November 2018, when all companies within scope will be required to have complied. To date, a little over 2,000 have been submitted, which suggests businesses are already falling behind in their obligation.
As Oliver noted: “Response rates certainly appear low at this stage and the quality of the available data also seems varied, with some entries incomplete and others containing inconsistencies. We’ve identified instances of standard payment terms being ‘inflated’ in order to be able to report that 100% of invoices are paid on time. This, of course, doesn’t tell the whole story and is not in the spirit of the legislation”.
Why the shortfall?
Several reasons have been put forward to explain the shortfall in and quality of submissions.
It’s no defence, but it’s likely there’s a lack of awareness or understanding of the legislation. There’s also thought to be a lack of preparation – there’s a need to build up data for six months prior to reporting. Then there’s the need to get buy-in from accounts teams to gather the information for submission. Given the extra administrative burden that may be involved, many may be dragging their feet.
In my opinion, there are varying degrees of familiarity with this legislation. Some companies have invested a lot of time and effort to understand and comply with the legislation, whereas other companies have not made the same level of investment.
Lastly, it’s likely that amidst a busy compliance agenda it simply isn’t yet a priority. Failure to comply with Duty to Report can see businesses face criminal liability and fines, although the potential levels of fine in practice are not yet clear. Compare this to the widely-known eye watering fines involved in the failure to comply with the GDPR and it’s perhaps hardly surprising Duty to Report isn’t at the top of most people’s agendas.
Oliver added: “We really are in an unprecedented era of regulation, with many businesses now more than ever being required to take action in a wide range of areas including data protection, anti-bribery, modern slavery, gender pay gap reporting and payment practices. It seems only natural that businesses will have a tendency to prioritise compliance in areas attracting the most attention from an enforcement and publicity perspective.”
What will kickstart compliance?
So if compliance levels are currently relatively low at best, what is going to make the difference? The panel suggested increased scrutiny would help. Enforcement action could be taken to show the legislation had teeth. It is possible that the Department for Business, Energy & Industrial Strategy is being patient about enforcement action to allow businesses time to become familiar with the legislation and how to report, but also because, until November 2018, not every qualifying business will have had requirement to report. After this time we may find an increased level of enforcement focus.
“Whilst we’re not aware of any enforcement action having been taken so far, failing to report when required or reporting misleading information attracts criminal liability and potentially hefty fines, so the Regulations really shouldn’t be ignored for much longer,” notes Oliver.
What can you do in your business?
The panel explored how finance professionals could change the culture of late payments in their own businesses. The first step is to check whether your business is affected by the legislation. Then review your current payment terms and policies – would you be happy to go public with them? Look at your accounting systems and assess how easy it is for you to collect and report on the performance criteria and consider how to tackle the requirements if you aren’t. If you’re a supplier, vote with your feet. Duty to Report data is public, so you can check how quickly a company pays its invoices and decide if you want to work with them.
SAP Concur is here to help
But remember, with the right SAP Concur solutions in place, Duty to Report doesn’t have to be onerous. At the click of a button you can see invoice arrival dates and a full audit trail as well as a full picture of all liabilities. The tool cuts capture and coding time by ten days and approval times by up to 70%. The ability to comply with Duty to Report becomes a side benefit to a much wider transformation in your business. Plus customers who use Concur Invoice have access to a pre-built report we have developed to help companies in reporting for the legislation.
If you’re not quite up to speed yet, a good place to start our blog, The Nitty Gritty of the Duty to Report.