U.K. registered firms are now required to provide the government with detailed information on how suppliers are paid, thanks to new compliance regulations.
According to a report in The Wall Street Journal, the new rules, which were introduced by the Department for Business, Energy & Industrial Strategy (or BEIS) in the U.K. are aimed at addressing late payment practices that have become widespread in the U.K.
Under the rules, companies have to provide details twice per year about how suppliers are paid, how long it takes and in how many instances the payment is delayed. Based on figures calculated by the U.K. government, close to half of the U.K.’s 5.5 million small and medium companies receive late payments, with $33.9 billion owed to them at the end of last year, reported the WSJ.
“Small firms are going out of business because they are owed money by large firms,” said Liz Sandwith, chief professional practice adviser at the Chartered Institute of Internal Auditors, in the report. Large companies on average owe 60 percent of the payments, noted the WSJ, citing data from the Federation of Small Businesses, or FSB, an advocacy group.
What’s more, the FSB said a slowdown — brought on by Brexit — could make it worse, with late payments increasing whenever there is economic volatility.
For large companies, the WSJ reported that the disclosure of how companies pay their suppliers (or don’t in some cases) could hurt a business’s reputation. If suppliers see discrepancies in what is disclosed and how they have gotten paid, they have the right to bring it to the regulator’s attention, noted the paper. Companies and their directors are liable under the new regulation if they don’t comply or provide misleading information.
Black Swan Analysis Ltd., a consulting firm, is one example of a small business that has had a hard time getting paid. “Many big companies have finance systems in place that help them delay payments for as long as possible,” said Black Swan Director Zoe Talbot-Watt in the report. She said because of that, she has stopped working for certain firms.