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Payment Terms to be Disclosed

Walter MacCallum, Nahum Ayliffe, Rohan Harris, Rory Maguire and Joe Denina

New laws have now been passed by both houses of the Federal Government in the form of the Payment Times Reporting Act 2020 (Cth)(Act). The Act is slated for commencement on 1 January 2021.

The government estimates that there are up to 10,000 of the largest businesses and entities in Australia that will be affected by the Act and its intention is to reduce the time for payment of invoices issued to big businesses by small businesses.

Businesses with an annual turnover greater than $100 million will be required to undertake mandatory bi-annual reporting to the new Payment Times Reporting Regulator. That information will be made accessible through a public online register which has been designed to allow the public and small businesses to analyse the payment practices of the large businesses they trade with.

Compulsory compliance with the Act will be enforced by various means - with enforcement powers vested in the new Regulator including searches, audit powers and the power to seize assets.

These new national laws have been implemented to drive a cultural change in the way Australia’s largest businesses pay small businesses. It may be the case that following the introduction of the Act, if the intended change in large business practices do not occur, the government will consider implementing amendments to the Act to encourage change. In our view, such changes could potentially include mandatory minimum payment terms.

 

THE PURPOSE OF THE ACT

The Government recognises and is concerned that long and late payment times from large businesses to small businesses can often lead to negative cash flow positions for small businesses – this is at the core of the Act. The Government has decided a definitive cultural shift in the payment practices of large businesses is necessary, particularly as the economy attempts to recover following the COVID-19 pandemic.

Financial estimates predict that that if payment times are reduced to 30 days there would be a benefit to the Australian economy of up to $500 million annually.

 

THE REQUIREMENTS FOR LARGE ENTITIES TO PROVIDE ALL RELEVANT INFORMATION

The Act requires all large businesses with annual turnover greater than $100 million including corporate groups which exceed that turnover, to submit a “Payment Times Report” twice in each reporting year, to a newly created Federal Payment Times Reporting Regulator. It is intended that the first report will be required on 1 July 2021.

The report must outline specific and accurate information in relation to payment terms and practices of the reporting entity (or group) including:

  1. The pattern of the reporting entity’s payment time frames at the commencement of the relevant reporting period. This data must also include the longest and shortest payment time frames for that entity;
  2. Reasons for any changes to the payment time frames for the reporting entity; and
  3. The number of invoices issued to businesses classified as ‘small businesses’ which were paid in full by the reporting entity during the relevant period and must also include information on small business invoices which were paid by reporting entities within prescribed periods namely: less than 20 days, 21-30 days, 31-61 days, 61-90 days, 91-120 days and more than 120 days.

An online and publicly accessible Payment Times Register will hold all of the reporting information submitted by large businesses. Small business operators and members of the public will have the ability to conduct a more informed assessment about the payment terms of the large business entities. As part of the regulations, reporting entities must retain the information they use to submit to the Register for a minimum of seven years.

 

ENFORCEMENT AND CIVIL PENALTIES

The Act will provide the Regulator with powers including investigation, inspection and seizure of evidence to enable prosecution of businesses that are non-compliant. The Regulator will also have the discretion to name and shame, with the power to disclose the identity of those entities which do not comply.

After an initial moratorium period of 12 months, civil penalties of up to 0.6% of a business’ annual turnover may apply to large businesses who do not comply with the new laws.

 

PENALTIES FOR NON-COMPLIANCE

Breach

Penalties

Failure to keep records

0.2 % of the total income for the income year in which the contravention occurred

Failure to report

Up to 300 penalty units (can be applied per day of non-compliance). A penalty unit is currently $220.00

False or misleading reports

0.6 % of the total income year in which the contravention occurred

How we can help

Russell Kennedy will monitor the developments on these new laws and provide further updates. Russell Kennedy has also published other recent insights on legislative and regulatory changes including relevant to the Mandatory Code of Conduct for Commercial Leases and information for creditors on voidable transactions

If you require further information, please contact Walter MacCallum (Sydney), Rohan Harris (Sydney), Joe Denina (Sydney), Rory Maguire (Melbourne), Nahum Ayliffe (Melbourne), Suzanne Rieschieck (Melbourne), Andrew Parlour (Melbourne) Paul McCarthy (Melbourne) or a member of our Dispute Resolution or Corporate and Commercial teams. 

If you would like to stay up to date with Alerts, news and Insights from our team, you can subscribe to our mailing list here.

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