Introduction of Payment Times Reports Register to provide transparency of large business payment practices

Corporate & Commercial 15 January 2021

On 1 January 2021, the Payment Times Reporting Act 2020 (Cth) (the Act) commences,  which will oblige large businesses with an annual turnover of more than $100 million (Reporting Entities) to report their payment terms and practices with respect to their Small Business suppliers, twice per year.  Once reported, the reports will be made available on a public database, called the Payment Times Reports Register, which can be accessed online free of charge.

The purpose of the Act is to increase commercial transparency, allowing Small Business Suppliers (which are businesses that operate in Australia, with an annual turnover of less than $10 million) to make more informed decisions about who they chose to do business with.  In addition, the Act aims to incentivise the improvement of payment terms and practice of large businesses by creating a more competitive market.

Who is a Reporting Entity?

Reporting Entities are businesses that:

(a) carry on an enterprise in Australia, and;

(b) have a total income of more than $100 million for the most recent financial year, however where the entity is part of a corporate group the following applies:

(i) If the entity is a controlling corporation, have a combined total income from all entities in the controlling corporation’s group of more than $100 million for the most recent financial year; or

(ii)  If the entity is a member of a controlling corporation’s group as mentioned above, that entity has a total income of more than $10 million for the most recent financial year.

(c) are constitutionally covered, meaning they are one of the following:

(i) Entities that have a constitution (excluding not-for-profit organisations);

(ii) Foreign entities;

(iii) Entities that carry on an enterprise in an Australian Territory;

(iv) Body corporates that are incorporated in an Australian Territory; or

(v) Corporate Commonwealth entities.

Entities that don’t meet the requirements above can voluntarily elect to become Reporting Entities under the Act.

Once an entity is considered a Reporting Entity, it will remain a Reporting Entity until the Regulator decides otherwise, even if its turnover falls below the relevant thresholds above.

What information  must a Reporting Entity disclose ?

Reporting Entities must produce a report twice per financial year, which includes the following information:

  • The Reporting Entity’s standard payment periods, including the longest standard payment period;
  • Details of and an explanation about any changes to the standard payment periods, including in relation to the longest and shortest payment periods;
  • The proportion (in terms of total number and total value) of Small Business invoices paid after the invoice was issued:
    • 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
  • The proportion (determined by total value) of all procurement from Small Business suppliers;
  • The Reporting Entity’s practises for receiving and paying invoices from Small Businesses;
  • Any fees Small Business Suppliers need to pay to a Reporting Entity to participate in any tendering or procurement processes, or to have their invoice paid; and
  • Details of any Small Business supply chain finance arrangements.

What are the consequences for non-compliance?

Under the Act, the Regulator has broad enforcement powers, which include:

  • Monitoring and investigating a Reporting Entity’s compliance with the Act;
  • Compelling a Reporting Entity to undertake a compliance audit;
  • Giving infringement notices for breaching civil penalty provisions under the Act; and
  • Publishing the identity of non-complying Reporting Entities and any details of their non-compliance.

If a Reporting Entity fails to report, provides misleading or false information, fails to participate in a compliance audit, or fails to keep relevant records for a period of 7 years, it can face fines that range from $13,320 to $77,700, or a fine up to 0.6% of its annual income (equating to at least $600,000 for a corporation with an annual turnover of $100 million).

With significant penalties at stake, it is extremely important that all entities who meet the definition of a Reporting Entity take steps to ensure compliance with the Act.

However under the Act, Reporting Entities will be given a grace period to adjust to the new reporting requirements, with  a 12 months transition period where enforcement powers and penalties do not apply.

What does this mean for Small Business Suppliers?

With the implementation of the Payment Times Reports Register and broad enforcement powers available to the Regulator, payment outcomes for Small Business suppliers are projected to greatly improve. The obligation to disclose payment timing and practices is likely to encourage Reporting Entities to improve payment practices and ensure Small Businesses are treated fairly.

In addition, the Act will create greater commercial transparency and will give Small Businesses the opportunity to investigate the payment terms and practices of their potential customers before entering into contractual arrangements.  This knowledge can assist Small Businesses to make informed decisions, taking into account all the relevant financial circumstances, before entering into a contract with a Reporting Entity where commonly there is a significant power imbalance and Small Businesses have little recourse if the other party has unfavourable payment practices.

Having clarity and knowing your rights and obligations under the Act is important.  If you have any questions regarding the Act, the experienced Corporate & Commercial team at Coulter Roache can provide you with advice in relation to your rights and obligations.

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