The Payment Times Reporting framework will come into effect on 1st January 2021. The bill will require organisations and government enterprises with a total annual income of over $100 million to biannually report on their payment terms and practices for small businesses.
Organisations that meet this threshold must provide details of their shortest and longest Standard Payment Periods (SPP) and the proportion of invoices that are paid within different ranges of time – from “less than 21 days” all the way up to “more than 120 days” after the issuing of an invoice.
Once the framework is implemented, impacted organisations will have a 12-month penalty-free period to get to grips with the new requirements and effectively transition. After this time, reports must be submitted within three months of each bi-annual reporting period to avoid daily fines of up to $13,320 for an individual and $66,600 for a body corporate.
Reports are submitted to the Payment Times Reporting Regulator (the Regulator) and will be published on a central public register, which will be known as the Payment Times Reports Register.
Who will be impacted by the new framework?
Organisations must report on their payment terms and practices for small businesses if:
- They are a constitutionally covered entity with a total income of more than $100 million.
- The entity is a controlling corporation and the combined income for all members within that corporation is more than $100 million.
- The entity has an income of more than $10 million and is a member of a controlling corporation with a total income of more than $100 million.
- They are a commonwealth government corporate entity with a total income of more than $100 million
It’s estimated that 9000 entities will be required to file reports under this new legislation. Organisations with a turnover of less than $100 million and those registered under the Australian Charities and Not-for-profits Commission Act 2012 will be exempt. However, these organisations can opt to voluntarily submit a report.
What is the purpose of the new framework?
Although the new framework doesn’t explicitly mandate organisations to pay their suppliers within a certain time frame, the bill strongly implies that payment terms of more than 30 days are problematic.
This coupled with the fact that the details on payment terms will become publicly available will likely motivate businesses to review their processes, ultimately improving payment outcomes.
Increased transparency will also allow smaller businesses the option to evaluate their prospective customers before committing to a contract.
How do small businesses benefit from quicker payment terms?
Smaller suppliers often lack the power, influence and resources to negotiate fairer payment terms.
A 2019 study by AlphaBeta found that long (more than 30 days) or late payments (after an invoice’s due date) have an enormous impact on the 3.4 million small businesses in Australia. More than one-third of small business invoices are paid after 30 days and, on average, payment takes a total of 63 days. It’s estimated that this equates to $7 billion in working capital that is transferred from small to large businesses every year.
The capacity for late payments to significantly impact small suppliers, from their ability to hire new talent to investing and growing their business, shouldn’t be underestimated. If organisations were to improve their payment terms, smaller suppliers would benefit from better cash flow, significant business growth and, in some cases, avoid bankruptcy.