Monday 24 June 2019

UK: Creating a responsible payment culture and board level responsibility

Last October, the Government published Creating a responsible payment culture - a call for evidence in tackling late payment: see here (pdf). Last week the results of the call for the evidence and the Government's response were published: see here (pdf). Part of the Government's response is titled "Board level responsibility" and within this section the following is said (pp. 24-25):
Increasing board level responsibility will ensure that late payments are being discussed at the highest level of organisations. Furthermore, it will increase the visibility of companies’ payment policies and who is responsible for them, allowing other businesses to engage the appropriate person with relevant issues and concerns.

The Payment Practices Reporting duty for large businesses has started to improve Board level responsibility for payment practices.

The Audit Committee of a company, which includes Non-Executive Board members, has an important role to play in considering the integrity of a company’s financial statements and the financial controls in place. In the 2019 Spring Statement, the Chancellor announced that government will require large companies’ audit committees to review payment practices and report on them in their annual accounts. This will further elevate payment practices to Board level, increase transparency and complements a new reporting obligation ... that came into force in January 2019.

We are working through the implementation of the Chancellor’s Spring Statement announcement with the Financial Reporting Council (FRC). This will preferably be implemented through guidance that clearly sets out the expectation that Audit Committees will review payment practices and report on them in their annual reports. But if necessary, we will consider legislation to ensure that the issue of late payments is given sufficient attention by the Boards of larger companies.

[U]nder a new strategic report requirement, large companies must include a statement in their directors’ report summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the company during the financial year.

We are also asking the FRC to review how well payment practices are reflected in the first year of the new reporting requirement, which will inform our future thinking on this issue. The requirement applies to c.15,000 both listed and private companies".

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