Payment Times Reporting Scheme: what the construction industry needs to know

03 March 2021

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, including in the construction industry.

The time it takes to pay suppliers is a major issue in terms of an entity’s cash flow and long term survival. This is of particular importance to smaller businesses in the construction industry, especially in difficult economic times.
Under the Scheme, large businesses and large government enterprises 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.

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 3 months to upload their report to the Payment Times Reporting Regulator via the online portal.

For most Australian businesses 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 the construction industry?

Cash flow is a common source of insolvency for contractors and subcontractors, and there have been a range of laws passed in recent years to seek to address this issue including amendments to the Security of Payment regimes and the safe harbour and ipso facto laws.

The Scheme will help contractors and subcontractors in the construction industry by increasing transparency around payment terms and improving payment outcomes for small businesses.

It will also further encourage increased transparency and accountability around supply chain management for big businesses.

This can be seen as part of an overall shift towards holding big businesses accountable for their supply chains, with the Modern Slavery Act introducing a similar reporting regime for big businesses on modern slavery risks in their supply chains, which commenced in 2019.

This article was written by Scott Alden, Partner and Victoria Gordon, Senior Associate.

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