Understand when and how to comply with the new Payment Times Reporting Scheme.
In effect since 1st January 2021, The Payments Times Reporting Scheme (PTRS) requires entities with over $100 million in turnover to report their small business supplier payment terms and practices to a central government database.
What are the aims of the scheme?
The scheme aims to improve payment outcomes for small businesses by creating transparency around the payment practices from large businesses to small suppliers, and giving small businesses access to information on reporting entities’ payment performance, enabling them to make a more informed decision about their potential customers.
According to research from AlphaBeta, “normalising a 30-day payment time from large business to small business … would have an estimated net benefit to the Australian economy of $313 million per year.”
Why is the scheme necessary?
Industry.gov.au notes that “long” payments (after 30 days) and late payments are a significant problem for Australia’s 3.5 million small businesses. The situation creates a domino effect as small businesses are forced to pay their suppliers late in turn.
AlphaBeta’s 2019 study of 10 million invoices from over 76,000 small business revealed:
- Approximately $77 billion worth of invoices are paid late every year.
- More than a third of small business invoices are paid after 30 days.
- Late invoices take an average of 63 days to be paid. This was estimated to equate to $7 billion in working capital transferred from small to large business every year.
- Long and late payment times affect the cash flow of small businesses that are owed the outstanding debt. The need to cover the shortfall in their working capital constrains the ability of small businesses to hire, invest and grow.
- Late payments lead to higher bankruptcy and exit rates, and impact the mental health of small business owners.
Writing for The Australian, Robert Gottleibsen commented that the Payment Times Reporting Framework is part of a swathe of new rules that will “force corporate giants to play fair with small suppliers … The current system where large businesses use small businesses as ‘banks’ will end.”
Is my organisation required to report?
The PTRS applies to:
- Constitutionally Covered Entities (CCEs) that make more than $100 million per annum in income.
- Entities that have an income greater than $10 million per annum if the entity is part of a group with a combined total income of greater than $100 million per annum.
How do I know if a supplier is a small business?
The online portal includes a Small Business Identification Tool to help entities identify which suppliers they need to report on. Small businesses are those that carry on an enterprise in Australia, have an ABN, and have an annual turnover of under $10 million in their most recent income year.
Reporting entities use the tool by uploading a list of their suppliers’ ABNs. The tool will then return a CSV file identifying the suppliers that are small businesses.
How do I report?
To submit a payment times report, reporting entities must:
- Download a Payment times report template from the payment times website.
- Populate the template with their payment times information.
- Log into the reporting portal (using myGovID) to upload their report and to submit any other relevant information or documentation.
Required information includes:
- ABN and description of business activities
- Reporting period
- Details on the person submitting the report
- Details of the approver of the report
- The shortest and longest standard payment periods. E.g.:
- “Standard payment period = 20 calendar days
- Shortest payment period = 15 calendar days
- Longest payment period = 30 calendar days”
- The proportion of small business invoices paid within certain time frames (expressed as a percentage). E.g.:
- “25% of invoices were paid 21 to 30 days after the issue day.”
- Information on supply chain finance if applicable.
More information on reporting requirements: https://www.industry.gov.au/data-and-publications/payment-times-reporting-scheme-guidance-material/reporting-requirements
How often do I need to report?
Reporting entities must lodge a Payment times report within 3 months of the end of each 6-month reporting period.
The first payments times reports will be due from 1 July 2021.
- Reports must be through the reporting portal within 3 months of the end of the reporting period, which will be 1 January 2021 to 30 June 2021 for most businesses.
- The first lodgement of the payment times report is due by 30 September 2021.
What penalties are involved for non-compliance?
Failure to report, or late and inaccurate reporting, may result in:
- up to 300 penalty units per day for failing to provide a report
- up to 0.2 percent of annual income for failing to keep records of payment times
- up to 0.2 percent of annual income failing to comply with an auditor appointed by the Regulator
- up to 0.6 percent of annual income for providing misleading information.
Furthermore, entities will be “named and shamed” on a publicly available portal to help small businesses decide whether or not to do business with them.
Legislation is also being considered in 2021 that will mean large businesses that do not pay small businesses on time will lose access to government contracts.
Although the Small Business Identification Tool will help in this aspect of reporting, there are likely to be challenges in terms of data accuracy, or ERP systems not capturing the relevant data.
- Conduct an end-to-end review of P2P data to ensure readiness to report.
- Do not underestimate the strain the requirement to report every six months could place on finance teams.
- Consider employing AI and Machine Learning to lighten the load.