Time’s up – your rights and obligations as a large business under the Payment Times Reporting Scheme

The Payment Times Reporting Scheme (Scheme) commenced on 1 January 2021 as a result of the passing of the Payment Times Reporting Act 2020 (Cth) (Act) and the Payment Times Reporting (Consequential Amendments) Act 2020 (Cth). The Scheme aims to increase transparency and improve payment outcomes for small businesses by requiring large businesses to report on their standard payment terms to small business suppliers twice a year.

While the Scheme appears relatively straightforward, businesses may be caught off-guard by the level of detail that is required in each report and the likely cost of getting it wrong. In addition, as the requirement to report on payment terms is completely new in Australia, many businesses may not be equipped with a quick and efficient method of collating the information that is required, and may need to consider business improvements to meet their ongoing compliance obligations.

In this article, we examine the key components of the Scheme and leave large businesses with some takeaways to consider.

Why has the Scheme been introduced?

The Scheme was introduced by the Federal Government in response to the prevalence of long and late payments from large businesses to small businesses. In a recent study, it was found that over one-third of small business invoices are paid after 30 days and on average take 63 days in total to be paid.¹ The study found that late payments of this nature cause a ‘domino effect’ down the supply chain, significantly limiting the working capital of small businesses and restricting their ability to hire, invest and grow.

Which businesses are required to report under the Scheme?

The Scheme applies to ‘constitutionally covered’ entities that carry on an enterprise in Australia (CCEs) which have a total annual income that exceeds the income threshold test under the Act.² The broad definition of ‘constitutionally covered’ under the Act means that most private and government-owned Australian entities, and foreign entities operating in Australia, that meet the income threshold will be required to report.³ In simple terms, the following entities are likely to be ‘reporting entities’:

• CCEs with a total annual income of $100 million (excluding charities);
• CCEs that are parent companies of a corporate group with a combined annual total of $100 million; and
• CCEs that are subsidiaries in a corporate group with a combined annual total of $100 million where the entity’s own total annual income was more than $10 million.

What does the Scheme require?

The Scheme requires reporting entities to report their small business payment terms and practices twice per year. The bi-annual report must include:⁴

• the standard payment practices of the reporting entity for the ‘reporting period’, including the longest and shortest periods of payment;
• the proportion (by number and value) of small business invoices paid by the reporting entity during the reporting period that were paid within 20 days, between 21 and 30 days, between 31 and 60 days, between 90 and 120 days and more than 120 days after issue; and
• the proportion (by total value) of all procurement by the reporting entity from small business suppliers.

The reports submitted by reporting entities will be publicly accessible on the Payment Times Reporting Register (Register), to increase transparency and allow small business suppliers and the public to decide which companies they want to buy from or with whom they want to do business.

What is a small business for the purpose of the scheme?

Under the Scheme, a small business refers to an entity described as a small business in the Payment Times Small Business Identification Tool.⁵ This will apply to entities that carry on an enterprise in Australia, have an ABN, and have an annual turnover of less than $10 million for the most recent income year.

How will the Scheme be enforced?

The Scheme establishes the Payment Times Reporting Regulator (Regulator). The Regulator has broad powers to do ‘all things necessary or convenient’ to perform its functions, including to issue infringement notices for breach of civil penalty provisions, to require reporting entities to undertake compliance audits and to publish the details of non-complying reporting entities on the Register.

The Scheme comes with a 12-month penalty free transition period from 1 January 2021 to 1 December 2021. Reporting entities cannot be subject to enforcement action during this time, but must still meet their reporting obligations.

What are the risks of non-compliance?

Following the transition period, there is risk of significant penalties where a reporting entity fails to comply with the Scheme. For example, the civil penalties that may apply under the Act include:

• 60 penalty units ($13,320) for failing to report within 3 months of the end of the reporting period for an income year;
• 60 penalty units ($13,320) for failing to comply with the Regulator’s request to conduct a compliance audit;
• the greater of 200 penalty units ($44,400) or 0.2% of the entity’s total income in an income year for failing to keep records of any information used in the preparation of a report for at least seven years after the end of the reporting period;
• the greater of 200 penalty units ($44,400) or 0.2% of the entity’s total income in an income year for failing to provide an appointed auditor with all reasonable facilities and assistance as are necessary for the auditor’s duties; and
• the greater of 350 penalty units ($77,700) or 0.6% of the entity’s total income in an income year for providing false or misleading information to the Regulator.

In addition, businesses must consider the reputational risks that arise as a result of the publicly-available reports they are required to submit. The reports submitted by a reporting entity will be available for viewing on the Register unless it would be contrary to the public interest (per the Act). This exposes large businesses to increased scrutiny from both small business suppliers and the general public, whose decision-making may be strongly influenced by what is contained on the Register. This increased transparency has the potential to result in loss of opportunities, loss of profit and negative media attention for large businesses. This is particularly so for any large businesses that have been non-compliant with the Scheme, where the Regulator chooses to publish full details about this non-compliance on the Register.

Takeaways

The Scheme imposes a substantial regulatory burden on large businesses operating in Australia, with the explanatory memorandum to the Act estimating the total compliance costs for reporting entities at $22.5 million per year.⁶

With the end of the transition period in sight, large businesses should urgently assess their position under the Scheme, considering any operational or organisational changes that would need to be made to ensure ongoing compliance. In particular, large businesses may need to engage someone to prepare and manage payment time reports, and may need to update or improve file management systems in order to readily access details about payment terms. Where possible, increases in efficiency and record-keeping are likely to greatly assist in managing the compliance costs introduced by the Scheme.

How can we help?

We have a specialist team that can advise you on your obligations under the Payment Times Reporting Scheme and can assist you with preparing your report. Please contact us if you would like more information about the services we provide.

This article was written by Teresa Torcasio, Partner, Zoe Vise, Solicitor and Chloe Fabbro, Law Graduate.

¹AlphaBeta, Paying the price – the economic impact of big businesses paying Australian small businesses late (Report, June 2019).
²Payment Times Reporting Act 2020 (Cth), s7.
³Payment Times Reporting Act 2020 (Cth), s6.
⁴Payment Times Reporting Act 2020 (Cth), s14.
⁵Payment Times Reporting Act 2020 (Cth), s5.
⁶Explanatory Memorandum, Payment Times Reporting Bill 2020 (Cth).