The Australian Government has introduced the Payment Times Reporting Scheme (Scheme) under the Payment Times Reporting Act 2020.
The Scheme commenced on 1 January 2021 and aims to improve payment times for Australian small businesses. Corporate Commonwealth entities need to be aware of their reporting obligations, and be across the reporting obligations of other large organisations they contract with.
Under the Scheme, large government enterprises (as well as large businesses) need to report their small business payment terms and times.
The Scheme aims to:
- increase transparency around large business’ payment performance;
- help small businesses decide who to do business with;
- create incentives for improved payment times and practices; and
- help the public make decisions about the large businesses they buy from.
Who needs to report?
A reporting entity is a ‘constitutionally covered entity’ that carries on an enterprise in Australia and:
- has an annual total income of more than $100 million;
- is a controlling corporation and the combined total income for all members in the group is more than $100 million; or
- is a subsidiary of a controlling corporation (where the group has an $100 million income) and has an annual total income of more than $10 million.
A ‘constitutionally covered entity’ includes a corporate Commonwealth entity, or a Commonwealth company, within the meaning of the Public Governance, Performance and Accountability Act 2013.
A corporate Commonwealth entity is a body corporate, and is legally separate from the Commonwealth, whereas non‑corporate Commonwealth entities are part of the Commonwealth (eg Departments of State or Parliamentary Departments). A full list of Corporate Commonwealth entities can be found here.
‘Constitutionally covered entities’ also include:
- a constitutional corporation;
- a foreign entity;
- an entity (other than a body politic) that carries on an enterprise in a Territory, or a body corporate that is incorporated in a Territory or taken to be registered in a Territory under section 119A of the Corporations Act 2001.
If a ‘constitutionally covered entity’ does not meet the reporting thresholds, they may choose to opt in to the Scheme.
Registered charities and not-for-profits are not caught by the Act.
When do you need to report?
Reporting entities will need to report on a twice-yearly basis, determined by their financial year. They will have three months to upload their report to the Payment Times Reporting Regulator via the online portal.
For most reporting entities with a 30 June financial year, the first reporting period is from 1 January 2021 to 30 June 2021, with the first report due by 30 September 2021.
What needs to be reported?
Reporting entities will need to report twice-yearly on:
- the standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods;
- any changes over the 6 month reporting period to the standard payment periods;
- the proportion (determined by total number and total value) of small business invoices paid within 20 days, between 21 and 30 days, between 31 and 60 days, between 61 and 90 days, between 91 and 120 days and more than 120 days after the invoice was issued;
- the proportion (determined by total value) of all procurement that was procurement from small business suppliers; and
- other information prescribed by the Payment Times Reporting Rules, including in relation to arrangements for receiving or paying small business invoices and supply chain financing arrangements.
Penalties
Civil penalties apply to reporting entities (other than volunteering entities) that fail to report (up to 60 penalty units) or give the Regulator a false or misleading report (up to 350 penalty units) .
What are the impacts for Commonwealth Government entities?
Corporate Commonwealth entities need to be aware of their reporting obligations under the Scheme.
Other Commonwealth entities who are not directly required to report also need to be aware of the reporting obligations of big businesses they contract with, and the aim of the Scheme which is to increase transparency around payment terms and improve payment outcomes for small businesses.
This article was written by Scott Alden, Partner and Victoria Gordon, Senior Associate.