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An independent review will consider whether mandating “five-day” payment terms on electronic invoices would be appropriate.
A review of the Payment Times Reporting Act 2020 (the Act) has opened for public feedback, with a range of options put forward for how payments are regulated in Australia.
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On 6 December 2022, the Australian Government announced an independent review of the Payment Times Reporting Act 2020 (the Act) and released the terms of reference for the review.
The Act originally came into effect on 1 January 2021 and requires large businesses and government enterprises to submit information on their payment terms and actual payment performance for small businesses to the Payment Times Reporting Regulator in Treasury every six months.
While the register was set up so that small businesses could check and decide what businesses had good track records, the review will determine whether the “policies have improved payment terms and practices of large businesses”.
The terms of reference seeks to determine whether “other measures would be more effective” in improving payment terms and practices.
For example, mandating one or more maximum payment periods (the mandated maximum payment periods) for the payment of small-business invoices by reporting entities would be more effective in improving those payment terms and practices.
In considering a mandated payment period, the review will determine:
- How mandated maximum payment periods could best be implemented, taking into account potential regulatory burdens on reporting entities and SMEs
- The mandated maximum payment periods that would be appropriate to improve payment terms and practices including whether mandated maximum payment periods of 30 days, 20 days, or 10 days or less would be appropriate and whether mandated maximum payment periods of five days would be appropriate if electronic invoicing were used
- The impact of sector or industry‑specific differences including how mandated maximum payment periods could be imposed on sectors and industries with differing payment terms and practices
- The compliance or enforcement arrangements that would be appropriate to support mandated maximum payment periods including whether a penalty regime should be established for the following purposes.
The review will also consider the efficacy of international approaches to improving payment times for small businesses and make recommendations on arrangements that ensure small businesses are paid on time.
Submissions to the review are open until 1 March 2023.
A final report is expected to be provided to the Australian government by the Honourable Dr Craig Emerson before 30 June 2023.
‘Little improvement’: ASBFEO
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has previously found that around 24 per cent of businesses take more than 120 days to pay their suppliers.
The data, which was based on a survey of more than 7,000 big businesses, found that the worst performers who were taking more than 30 days to pay their small businesses included 85 per cent of businesses operating in manufacturing, 82 per cent of construction businesses, and 24 per cent of big businesses in retail trade.
ASBFEO Bruce Billson said the Act had seen “little improvement” since it commenced in early 2021.
“A vast number of big businesses just aren’t meeting the mark and it’s causing needless harm and cashflow challenges for small and family businesses who are waiting too long to have their invoices paid,” Mr Billson said.
“Nearly one-quarter of big businesses taking four months or more to pay their bills is just not acceptable and there is little sign of improvement by the worst performing businesses.
“This needs to be taken more seriously. Finance is the oxygen of enterprise. Cash flow is vital to these small and family businesses," she continued.
“There is abundant scope for big businesses to lift their game and they should.”
Meanwhile, ScotPac chief executive Jon Sutton recently called for an overhaul of the system, signalling late payments can impact around one-fifth of our population.
[Related: 'Tardy payments' hurt SMEs: Scotpac]
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