Payment Times Reporting Scheme: understanding new mandatory reporting obligations for big business
31 March 2021
Jeremy Smith, Chairman, Melbourne
The Australian Government has recently introduced the Payment Times Reporting Scheme under the Payment Times Reporting Act 2020 (Cth) (Scheme).
Under the Scheme, which came into effect on 1 January 2021, large businesses and certain government enterprises are required to report certain information relating to the payment terms and practices that apply to their engagement with small business suppliers. The Scheme aims to make this information publicly available in order to:
- enable small businesses to make more informed decisions about potential customers; and
- create incentives for reporting entities to improve their payment terms and practices.
Who is required to report?
Broadly, an entity is required to report under the Scheme if it carries on an enterprise in Australia and:
- has an annual total income greater than $100 million for the most recent income year;
- is a controlling corporation of a group whose combined total income is greater than $100 million for the most recent income year; or
- is a member of a group of a controlling corporation with annual total income greater than $100 million and the total income for the entity is at least $10 million for the most recent income year.
Entities registered under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) are not covered by the Scheme.
There are other factors to consider when evaluating whether an entity is required to report.
What is required to be reported?
Content of reports
Under the Scheme, a reporting entity is required to report on:
- its standard payment periods at the start of the reporting period, including the shortest and longest standard payment periods;
- any changes to the standard payment periods during the last six months, including in relation to the shortest and longest payment periods;
- the proportion, determined by the 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 procurement that was procurement from small business suppliers; and
- any other information or documents prescribed by the Payment Times Reporting Rules, such as information relating to practices for receiving and paying small business invoices and the use of small business supply chain finance arrangements.
Small business and the Small Business Identification Tool
‘Small business’ is intended to capture businesses which carry on an enterprise in Australia with annual turnover of less than $10 million for the most recent income year. The Regulator has announced that it has developed the Small Business Identification Tool, which will assist reporting entities identify small business suppliers. A provisional version of the tool has been released for use, and the Regulator intends to make the approved version with its full functionality available by April 2021.
When do entities need to report?
Reporting entities will be required to report biannually and within three months of the end of each reporting period.
For reporting entities with a December year end, reporting commences in respect of the six-month period starting 1 January 2021, with the first report to be submitted to the Regulator by 30 September 2021.
What information is published by the Regulator?
The Regulator is responsible for administering the Scheme and will publish submitted reports on the Payment Times Report Register. The Register will be publicly available for online inspection free of charge.
The Regulator may elect not to publish information disclosed in a report where it considers that publication would be contrary to the public interest. In making that decision, the Regulator must have regard to whether the information is personal information, commercial-in-confidence or any other type of information prescribed in the Payment Times Reporting Rules.
Information will be considered commercial-in-confidence if the Regulator is satisfied that:
- release of the information would cause competitive detriment to a reporting entity;
- the information is not in the public domain;
- the information is not required to be disclosed under another Australian law; and
- the information is not readily discoverable.
Penalties and enforcement
The Payment Times Reporting Act 2020 (Cth) grants the Regulator extensive powers to monitor and enforce compliance with reporting entities’ obligations. These powers extend to the ability to undertake compliance audits and publish reports of non-compliance. The Regulator has also been granted broad investigative powers and the ability to impose civil penalties.
The Scheme provides for a 12 month transition period before compliance and enforcement measures apply. This grace period is set to conclude in December 2021.
Key impacts for large business
The introduction of the Scheme and additional reporting obligations it has imposed will likely cause a significant increase in compliance costs for large businesses.
If your organisation is covered by the Scheme, we recommend that you consider the following:
- Timing: Identify the first reporting period which will apply to your business, and the date on which your first report to the Regulator falls due.
- Identification of small business suppliers: Identify which of your suppliers are small businesses, and the payment terms which apply to your relationships with them.
- Reporting systems: Ascertain whether your accounts payable software currently captures all relevant data required to comply with your reporting obligations.
- Group reporting: If your entity is part of a corporate group, identify whether your entity is responsible for reporting on behalf of the group, or is required to provide relevant data for consolidation into a centralised report.
- Maintaining records: Ensure you have an effective system for storing and accessing relevant information which is to be included in reports.
- Commercial-in-confidence: Identify whether any information relating to small business supply terms is commercial-in-confidence.
- Responsible member: Determine who in your organisation is or will be appointed as the ‘responsible member’ for the purpose of signing and approving the report.
If you would like to discuss how the Payment Times Reporting Act 2020 (Cth) might affect your business, please contact Gadens’ Corporate Advisory Team.
Matthew Burge, Partner
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.