Explained: Updates to small business payment times legislation
The Federal Government has committed to updating the Payment Times Reporting Act following an independent review. Here's an overview of what will change and how this could help small businesses.
At a glance
Here’s a snapshot of the article’s insights:
- The average payment term for Australia's small businesses is currently 35.8 days.
- The updated legislation will not mandate maximum payment times, with the government believing these could do small businesses "more harm than good".
- Instead, the government says payment times reporting will become easier in an attempt to improve transparency.
- Big businesses will also be named and shamed according to payment performance, with the data publicly available.
Despite the introduction of the Payment Times Reporting Scheme in 2021, the proportion of invoices paid to Australia’s small businesses within 30 days has shown little improvement, increasing from 62.9% to 67.6%.
Moreover, the average payment term has barely fallen, from 37.5 days to 35.8 days.
The Federal Government has embraced every recommendation from an independent review of the Payment Times Reporting Act 2020, committing $8.1 million over the next four years. The funding aims to simplify payment times reporting, crack down on non-compliance, and name and shame big businesses that fail to pay small businesses on time.
According to Minister for Small Business the Hon Julie Collins MP, the changes would “deliver a better deal for small businesses”, which employ more than five million people and contribute more than $500 billion to the national GDP every year.
“When pressure is placed on small businesses, it is felt across the economy and community,” she said in her response to the review.
But she said many small businesses lack the market power to negotiate better payment outcomes, particularly with large business customers, which leaves them “no option but to lose business or accept long payment terms and late payments”.
Here are the key recommendations of the review, which was conducted by economist and former politician Dr Craig Emerson, that aim to improve the payment performance of large businesses to small business suppliers.
Improving payment times without mandates
The review advised against mandating maximum payment periods, which the government agreed with.
This comes despite Labor’s pre-election promise to cap invoice payment times at 30 days, a policy also backed by the Council of Small Business Organisations Australia (COSBOA).
But the recommendations say maximum payment periods could “do more harm than good” and disincentivise large businesses from using small business suppliers
Instead, a range of initiatives will be implemented to ensure businesses are paid on time, detailed below.
Easier reporting to improve transparency
The Payment Times Reporting Regulator already operates the Payment Times Reports Register, an online tool that receives payment times reports from large businesses every six months, which allows small businesses to identify which ones pay on time.
Improvements to this platform aim to eliminate inefficiencies in past reporting methods, which would enhance transparency.
The Regulator now offers a simplified reporting process, consolidates filings for corporate groups, and aims to alleviate the reporting burden on big businesses, to help them meet their reporting obligations. It also now has enhanced regulatory authority.
Naming and shaming big businesses
New resources will allow small businesses to access, interpret and compare the payment performance of large businesses. In addition, the Regulator will expand its functions to celebrate large businesses with good payment times as standard setters, while calling out those who continue to be slow or late in paying.
This aims to set clear expectations for payment conduct, while education will emphasise punctual payment as a key aspect of a company’s commitment to Environmental, Social and Governance (ESG) standards.
Other planned initiatives include:
- Incorporating payment behaviours within guidelines for unfair contract terms and unfair trade practice reforms
- Encouraging small businesses to use eInvoicing
- Strengthening advocacy channels for small business concerns
- Ensuring federal government agencies continue to demonstrate leadership in payment practices
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