The Act imposes obligations on large businesses and government enterprises with over $100 million in annual turnover to publish information on their small business payment times and practices.
The increased transparency around payment times and practices of large businesses will enable small businesses to make informed decisions about their customers and who they choose to trade with.
However, eligible entities may find the reporting requirements challenging. Accordingly, it is necessary that large entities have a thorough understanding of their upcoming obligations.
Overview of the Act
The Act establishes a payment times reporting requirement for eligible entities (Reporting Entities) to provide bi-annual reports on their small business payment terms and practices to the Payment Times Reporting Regulator (Regulator).
The reports will be published by the Regulator on a central public register, known as the ‘Payment Times Reports Register’ which will be contained on a freely accessible website. The Regulator will have the ability to enforce compliance with reporting requirements.
Which entities will be defined as a ‘Reporting Entity’?
An entity will be defined as a Reporting Entity if it carries on an enterprise in Australia and for the most recent income year:
- total income was more than $100 million; or
- if the entity is a controlling corporation – the combined total income for all members of the controlling corporation’s group was more than $100 million; or
- if the entity is a member of the controlling corporation’s group – the total income for the entity was at least $10 million.
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What must be Reported and When?
The Act will require Reporting Entities to disclose a range of information in relation to their payment practices with small business suppliers, including:
- basic information such as their name, a description of their business activities, and ABN;
- their shortest and longest standard payment periods;
- the proportion of small business invoices paid within certain timeframes; and
- the proportion (by total value) of procurement that was procurement from small business suppliers.
Reporting Entities must report each six months of an income year and provide the report to the Regulator within three months after the end of the relevant reporting period.
Identifying Small Businesses
A small business is an entity with an annual turnover of less than $10 million.
To assist Reporting Entities, a ‘Payment Times Reporting Small Business Identification Tool’ will be established which enables Reporting Entities to enter their supplier data, with the tool returning a negative result for suppliers that are large or medium businesses.
Immediate Actions to Consider
We recommend eligible entities take steps to prepare themselves given the Act’s impending commencement date.
From our experience, we expect large entities may find the new requirements challenging and may need to take steps to (among other things):
- review and verify the small business suppliers they will need to report on;
- review and stratify small business supplier payment terms and average timeliness of payments to understand if there are any material issues to resolve prior to the commencement of their obligations under the Act; and
- implement a robust plan to ensure data accuracy to avoid providing misleading reports.
With increased transparency and obligations around payment times and practices of large businesses, it is critical that eligible entities have a thorough understanding of the requirements of the Act.