In a bid to drive better payment times to small business suppliers, large companies with turnover of more than $100M, and some large government authorities are now required to report on their payment times to suppliers.
The new requirements under the Payment Times Reporting Act 2020 (Cth) and associated rules took effect from 1 January 2021. Reporting entities are required to lodge reports twice yearly and within three months of each reporting period. The first reports on payment times for the period 1 January to 30 June 2021 will be due by 30 September 2021.
This new scheme responds to investigations by the Australian Small Business and Family Enterprise Ombudsman in 2019-2020 which showed that some large companies were pushing out payments to their small business suppliers by 60 to 90 days and even up to 6 months.
In March 2020, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) released its final report on Supply Chain Finance Review, which highlighted the impacts of delayed payments to suppliers on the cashflow and viability of many small businesses and, in turn, the overall health of the Australian economy.
The Australian Government’s new reporting regime aims to encourage large Australian businesses to make payments of invoices within 30 days or sooner. The new Payment Times Reporting Scheme stops short of mandating all large companies to pay their suppliers within the 30 days. However, the scheme will make public the reports on practices and payments times through the Payment times reports register.
By increasing access to information, the Scheme aims to improve accountability of large businesses on their payment practices and enable small businesses to make informed choices about which companies they do business with.
Notably, the new legislation requires that all reports be provided to the board, while granting the regulator a naming and shaming power for non-compliance.
Which enterprises are captured by the new Payment Times Reporting Scheme?
The Payment Times Reporting Scheme applies to businesses or enterprises that:
- carry on an enterprise in Australia
- have a total annual income of over $100 million
- have a total annual income of more than $10 million and are members of a group headed by a controlling corporation with the total income of more than $100 million.
The Scheme also applies to Commonwealth corporate entities and Commonwealth companies that meet the threshold of income of over $100 million per year.
Business that are under the threshold may voluntarily chose to opt-in to the scheme.
Not-for-profit organisations, registered are under the Australian Charities and Not-for-profits Commission Act 2012(ACNC Act) are exempt from the new reporting arrangements.
Reporting entities are required to submit “payment times reports” twice yearly, within 3 months of the end of each six-month reporting period. This means reporting entities will be required to submit their first report by September 2021.
What directors need to know
Directors should be aware of how this legislation applies to their business. This includes whether your company or subsidiary is captured by the legislation or, whether you are a small to medium business that is seeking to use the information that will become available through the Payment Times Reports Register.
Directors of companies that are reporting entities should be aware of the contents of the reports that will be made from 1 July to 30 September 2021. Reports that show slow payment times could have reputational implications for the business and there is likely to be media and community interest in company practices.
Boards of companies that are not captured by the legislation may also wish to understand from management what their own organisation’s current practice is.
Full details on the New Payment Times Reporting Scheme are available through the Australian Government Department of Industry, Science, Energy and Resources website.
For further board guidance on considering supplier perspectives, members can access the recently released report, Elevating stakeholder voices to the board.