The new Payment Times Reporting Act (2020) was formally approved by the Australian Parliament on 14 October 2020. The laws come into force on 1 January 2020 and require liable businesses (i.e. businesses with annual turnovers of $100M or more) to submit a Payment Times Report to the newly established Payment Times Reporting Regulator every six months.
The new laws are intended to address a longstanding issue relating to lengthy payment times by large businesses to small businesses in Australia. Their introduction follows extensive research into payment times completed by the Australian Small Business and Family Enterprise Ombudsman (ASMFEO) over the past three years. This research suggested that the net benefit of moving from the current tardy payment practices of big business to a 30-day terms would deliver a cashflow benefit of around $520M per year to Australia’s 2.5M small business. This in turn would produce an estimated net benefit of around $300M per year to the wider Australian economy.
“The new laws do not require big businesses to pay small businesses within 30 days of a correctly rendered invoice”, said ACAPMA CEO Mark McKenzie.
“Rather, these laws require that large businesses report on their payment practices and standard payment terms via lodgement of a Payment Times Report every six months”, added Mark.
The information collected from big businesses will be used by the Regulator to compile a Payment Times Register that will publicly highlight the payment performance of all big businesses in Australia – and allow small businesses to assess the payment practice of current and prospective big business customers.
Which businesses are required to report?
The new laws apply to the following business types operating in Australia:
- large businesses and certain government enterprises with a total annual income of over $100 million
- controlling corporations where the combined total annual income for all members is more than $100 million
- businesses with a total annual income greater than $10 million and that are part of a group headed by a controlling corporation with a collective income greater than $100 million
When are liable business required to report?
Businesses must lodge a Payment Times Report within three months of the end of each 6-month reporting period. That means that the first report will need to be prepared for the period 1 January 2021 to 30 June 2021 and must be submitted on or before 30 September 2020.
Big businesses that do not receive goods or services from small business suppliers during a reporting period still need to submit a Payment Times Report. In this case they would submit a report with zero values.
What information is required?
Large businesses will be required to provide a Payment Times Report that includes the following information:
- Standard payment periods applied by the entity at the start of the reporting period, including both the shortest and longest standard payment periods.
- Details (and explanation) of any changes to the standard payment periods that occurred during reporting period.
- The proportion (by number and dollar value) of invoices paid to small businesses during the reporting period, grouped according to the following time periods:
- Less than 20 days after invoice date (i.e. date of issue);
- between 21 and 30 days
- between 31 and 60 days
- between 61 and 90 days
- between 91 and 120 days;
- more than 120 days.
- The proportion value of goods and services sourced from small businesses, as a proportion of the total value of goods and services sourced by the business during the reporting period.
How are businesses required to report?
Businesses that fall into any of the above categories are required to report on their payment terms and practices using an electronic pro-forma reporting format, known as a Smart Form. The Smart Form is intended for use by stand-alone entities, or the controlling corporation of a corporate group. Businesses that form part of a corporate group should be entered within the controlling corporation’s return.
Businesses that are liable to report under this scheme should already have received a smart form. Liable businesses that have not yet received their Smart Form should contact the Australian Department of Industry, Science, Energy and Resources by email (PaymentTimesReporting@industry.gov.au) or by phone (13 28 46 and select Option “1”) to advise their ABN, business name, business address, contact name of responsible person, position of responsible person, and email address of responsible person.
What do I need to do now?
It is now time to complete and lodge your Smart Form prior to the commencement of the first reporting period which begins on 1 January 2020. You should also be working to put the necessary financial reporting practices in place to capture all information needed for the submission of your first Payment Times Report.
More information? Guidance materials describing the operation of the new laws can be accessed via: https://www.industry.gov.au/data-and-publications/payment-times-reporting-scheme-guidance-material