The new Payment Times Reporting Scheme legislation is on the horizon and will require businesses with turnover >$100 million to report biannually on their payment terms and practices for their small business suppliers (turnover <$10 million).

Businesses that meet the criteria will need to disclose:

1. how quickly they say they will pay their small business suppliers based on agreed terms;
2. how quickly they actually pay their small business suppliers; and
3. how much and to what extent they use supply chain financing arrangements.

Businesses that do not comply are at risk of incurring financial penalties and additional compliance costs, as well as the reputational impact of not disclosing their payment information.

For all the benefits it is expected to bring, the new legislation will add a layer of complexity to business compliance and reporting requirements that will take some effort to bed down.

Some businesses that meet the new reporting threshold may struggle with limited bandwidth to analyse and present payment data relating to thousands of transactions.  Larger businesses that have more complex systems or “procure to pay” processes may also find it hard to extract the relevant data to report accurately and regularly.

There is also likely to be some uncertainty across the business community around the treatment of different types of financing facilities and whether they require disclosure under the new legislation.

What can you do now?

We are seeing an increasing focus on supply chain management and procurement from businesses looking to de-risk, achieve supply chain efficiencies and better manage costs.

Businesses can take steps now to prepare and ensure that they are positioned to meet their Payment Times Reporting Scheme obligations by:

• reviewing and verifying the suppliers that they will need to report on;
• reviewing the availability and quality of information that will be required to be reported to the Regulator;
• reviewing and stratifying supplier payment terms and average timeliness of payments to understand if there are any material issues to resolve prior to reporting commencing;
• assessing the potential working capital, cash flow and funding impacts that changes in payment arrangements may create;
• developing and implementing a robust plan to offset the impact through other working capital ‘levers’ that can best optimise the working capital position; and
• reviewing the procedural framework, governance and controls related to procurement, accounts payable, supplier management and reporting, and reset any policies and processes as necessary.

With the likelihood that the legislation will be enacted into law and the new reporting requirements will go ‘live’ on 1 January 2021, we encourage businesses to act now and assess supplier spend, supplier terms, payment performance and the impact of the new legislation on working capital and cash flow.

Please refer to our fact sheet for more information.