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Businesses are expected to face challenges with reporting payment times as they try to consolidate data from various data sources in the wake of the government’s new Payment Times Reporting Scheme, says one restructuring specialist.
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Company directors to face ‘headaches’ over payment times regime
29 April 2021
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10 minute read
The Payment Times Reporting Scheme (PTRS), which came into effect on 1 January this year, will require large businesses with an income threshold of over $100 million per year to submit a biannual report on their small-business payment terms and practices.
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With the first reports due by 30 September, businesses will soon find that the level of data required to comply with the PTRS will be far more granular than the Days Payables Outstanding (DPO) data it would typically keep to hand, said Adam Blogg, director at McGrathNicol.
“One of the greatest challenges will be the availability of data required to report,” Mr Blogg said. “Many businesses will find that the data required is not something that is currently captured and readily available, for example, the date the invoice was received.
“There will be varied levels of complexity across organisations based on the systems used and their ‘Procure to Pay’ processes, as there could be data captured across multiple systems that needs to be extracted and processed to align with the format required by the legislation.”
However, as businesses shift to paperless systems of sending and receiving invoices, Mr Blogg suggested a broader adoption of e-invoicing could gradually fill some of a company’s current data holes.
“There will be a greater level of data that is captured within systems that will assist with the reporting obligations, such as the actual date an invoice was received,” he said. “These new systems also generally assist with a level of automation and efficiency in ‘Procure to Pay’ processes.”
The scheme was designed to draw attention to businesses with onerous payment records by making the payment times of large companies publicly available in a bid to relieve small businesses of what can be crippling delays.
According to Mr Blogg, the scheme is likely to ease the capital burden imposed upon small business owners as a result of delayed payments.
He said the scheme is likely to encourage large companies to pay their suppliers faster, but it could also have adverse impacts on their own working capital and cash flow. Company directors will need to look to other parts of their business to fund the payments, he said.
“The most effective way for businesses to fund this would be by improving other parts of their working capital cycle,” he said, “such as the time it takes to collect cash from customers, or the average time they hold inventory.
“If businesses effectively use the ‘levers’ available in their working capital cycle, they can fund quicker payments to suppliers without impacting cash at bank or requiring additional sources of funding.”
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