On 1 January 2021, the Australian Governments’ Payment Times Reporting Act 2020 (Cth) (the Act) came into effect. The new reporting obligations require large businesses to keep records on payment terms, and provide bi-annual reports to the Payment Times Reporting Regulator. These reports will be made publicly available. Fines apply for non-compliance.
The primary purpose of the legislation is to improve payment times for Australian small business by increasing transparency, and encouraging large businesses to improve their payment terms and practices. The publication of information is also intended to assist small businesses to make more informed decisions concerning potential customers.
There are no specific requirements to pay within a specific timeframe, but large businesses are likely to face some public pressure to conform to payment norms, whatever they may be. It seems likely that the media will publish data on perceived poor payers, and perhaps Government and others may make compliance a condition of their contractual arrangements. Brand owners will need to monitor the situation and be cognisant of risks related to poor payers within their supply chain.
Which entities will be impacted?
A business is deemed a Reporting Entity under the Act if any of the following apply:
- Total annual income exceeds $100million.
- A controlling corporation where the combined total annual income for all members is more than $100million.
- An individual subsidiary with a total annual income of greater than $10million, and part of a group headed by a controlling corporation with a collective income of greater than $100million.
Currently the turnover of a whole franchise network is not aggregated, with the franchisor and franchisee entities assessed separately. However many franchise systems will come within the $100million threshold, and from past experience legislative dollar limits can change quite quickly, and with minimal public fanfare.
What is a small business supplier?
A small business supplier is an entity that carries on an enterprise in Australia and its annual turnover for the most recent income year is less than $10million. Many franchisors and franchisees will come under that threshold, and therefore be potential beneficiaries. Franchisors are likely to need to be on top of the published information to ensure any suppliers to the network are meeting the expectations of small business purchasers.
What are the reporting obligations?
Reporting entities are required to provide bi-annual reports to the Regulator, including responses to an extensive list of items detailed in the Act and the corresponding Rules.
Do large businesses have to pay within a specified time period?
No, there is no specific time period mandated by the legislation. Instead entities need to report by category of the number and value of small business invoices paid within various days of invoice – within 20; between 21-30, between 31-60, between 61-90, between 91-120 and over 120 days.
It is hard to assess what is considered reasonable, and to some degree this may be determined by public opinion in the relevant circumstances. However the inclusion of under 20 and 21-30 day periods seems to indicate some implicit expectation that payments will be within these periods. Some organisations have taken the lead, with the Department of Finance announcing non-corporate Commonwealth entities (NCE’s) must pay supplier invoices under $1m within 5 calendar days if electronic invoices, and within 20 days if manual. NCE’s must also pay interest if these payments terms are not met.
What are the Record Keeping Requirements?
Any information used to prepare the reports must be retained by the reporting entity for a period of at least seven years, and a failure to do so attracts a civil penalty.
What are the penalties for non-compliance?
A reporting entity is liable to a civil penalty of 200 penalty units for failing to comply with the Act, including failing to maintain appropriate records.
As noted above, there are currently no penalties for failing to specify particular payment terms.
What powers does the Regulator have?
The Regulator has various powers under the Act, including undertaking a compliance audit if they reasonably suspect a reporting entity have contravened the Act.
It is important to determine if your business is subject to the Act, or at risk of being impacted by the behaviour of competitors or the expectations of small business or other customers. Affected businesses need to understand the scope of their record keeping and reporting obligations. It is important to ensure the appropriate information gathering systems are in place to enable efficient and timely reporting.
Please contact any member of the Consumer Markets team at Norton Rose Fulbright if you have any questions or require assistance in ensuring your obligations are met.
This articles was co-authored with Sophie Timms.