A payment transparency law will be rolled out in January. The Australian government has acknowledged that extended payment time causes poor cash flow especially for small businesses. In the earthmoving industry, for example, companies have difficulty chasing bad debts because extended payment terms. In fact, payments get delayed up 90 days when industry-standard is only between 30 and 45 days.
The 90-day payment time is not unique to the earthmoving industry, however. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) says Australian companies are increasingly delaying payments to small business suppliers. Payment time now ranges between 45, 60, 90 or even up to 120 days. Even multinational companies are increasingly delaying payments, to the detriment of smaller businesses.
To address extended payment time, the Morrison government will roll out new payment transparency rules January next year. The government is asking businesses with more than $100 million in annual turnover to publish their payment practices information. According to the ASBFEO, about 2,500 businesses will be affected with the new rules. Among those affected will be government corporate entities and foreign companies.
Rules to Take Effect 1 January
The new rules will take effect 1 January 2021. The rules would require large businesses to report within three months after the end of a six-month reporting period. Large businesses will need to report on how quickly they say they will pay their SME suppliers. In addition, they will need to report how quickly they actually pay. The new rules will also additionally require large businesses to report if and how they use supply chain financing arrangements.
Small businesses and other stakeholders can access the payment times reporting information through a public website. If there is non-compliance, the government will impose daily penalties to those who don’t disclose their information.
In cases where an individual fails to report, notifies of changes, or complies with a notice of audit, the government will impose a fine of 60 penalty units. The government will also fine corporations 300 penalty units for the same non-compliance. If individuals fail to provide an auditor with assistance and keep records, the government will impose up to 200 penalty points. For the same non-compliance, the government will impose a fine of up to 0.2 percentage point of annual turnover for corporations.
“Cash flow is king for small businesses, ” according to small business ombudsman Kate Carnell. She welcomed the framework and its potential impact on cash flow for small businesses. “This framework will require big businesses to be upfront and honest about the time it takes to pay small businesses, to help small businesses choose who they supply,” Ms Carnell said.
Proposed Rules Uncertain, Accountants Say
The proposed legislation is uncertain, the Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia, which represents over 200,000 professional accountants, said.
The CA ANZ and CPA Australia pointed out that the legislation does not specify how to identify small business. Nor does the legislation explain how businesses will be reporting. Moreover, the professional groups note that the rules did not define what false and misleading means. Further, the rules did not identify who the regulator will be, the groups said.
The groups additionally noted that the Australian Taxation Office (ATO) was not able to participate in co-designing the process. They took notice that the ATO should have been involved in the simultaneous development of administrative guidelines as these assist in the implementation of a proposed tax law.
Minister for Employment, Skills, Small and Family Business Michaelia Cash said the new framework is essential to encourage fairer and faster payments.
“Slow or deliberately delayed payment times have a significant impact on small business cash flow and viability,” Ms Cash said. “Big businesses pay their small business suppliers late more than 50 per cent of the time.”
You can read more of the draft legislation here:
Liam White joined the Slater Byrne Recoveries team in early 2013. He has worked across the credit & dispute resolution industry for a number of years. He is currently working in a Marketing/Head of Sales capacity at Slater Byrne Recoveries.