The Payment Times Reporting Bill 2020 was passed by the Senate on Thursday, mandating that large businesses with an income threshold of over $100 million per year will be required to submit a biannual report on their small-business payment terms and practices.
A small business has been defined as an entity with an annual turnover of less than $10 million.
The new requirement will come into effect from 1 January 2021, with a 12-month transition period to allow large businesses to familiarise themselves with the scheme, before compliance and enforcement actions apply.
The reports will require information such as details of the shortest and longest standard payment periods offered by the large business, as well as the proportion of small-business invoices that were paid within 20 days, to more than 120 days after the invoice was issued.
These biannual reports will then be published on a central public register, known as the Payment Times Reports Register.
The government believes this publicly available information will allow small businesses to make more informed decisions about which large businesses they will supply to, and create pressure on large businesses to speed up their payment terms.
However, Labor believes greater transparency alone will not improve payment times, and had sought to include a “failsafe mechanism” amendment, which would introduce hefty penalties for large businesses who failed to pay within 30 days.
“The Payment Times Reporting Bill 2020 is weak and riddled with deficiencies, and continues the seven-year trend of this government failing to improve payment times for small businesses,” said shadow minister for small and family business Brendan O’Connor.
“Labor’s ‘failsafe mechanism’ amendment would have improved payment times to small businesses to 30 days or less.
“The failsafe mechanism could be triggered after three years of the scheme operating and would allow the regulator (created by the government’s bill) to force large businesses not paying small businesses on time to pay them within 30 days of face hefty fines.”
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has also publicly advocated for the introduction of a 30-day mandated payment term, but believes the new reporting framework is a step in the right direction.
“The scheme has a clear objective: to improve payment outcomes for small business by creating transparency around the payment practices of large business,” ASBFEO Kate Carnell said.
“Whether it will achieve this objective is unclear.
“Indeed, our view is that mandated maximum 30-day payment terms are required to achieve the desired change.”
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Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.