The government has released a discussion paper seeking views from small businesses about how it should implement its payment times reporting policy.
Announced last November, the government wants to introduce a national framework which would force large businesses to report on how long it takes them to pay small-business suppliers.
It’s being done in an attempt to reign in late payment times, often cited as a key cashflow problem for small businesses and an area of focus for the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
The government has proposed requiring about 3,000 of Australia’s largest businesses who turn over $100 million or more each year to participate in the reporting scheme, but is now seeking views on the scope and extent of the policy.
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What should the reporting scheme address?
In essence, most of the questions the department is canvassing involve determining the tradeoff between how useful the reporting scheme is to small businesses and how onerous the reporting requirements are on larger firms.
Critically, views on the way the scheme should be enforced, and what type of auditing framework should exist to ensure reporting businesses are kept honest, are also being sought.
In a stronger version of the scheme, the entire reporting framework could be legislated and backed by powers to force large businesses into compliance, which would leave firms with little wiggle room to obfuscate their payment history.
On the other hand, legislation to create a reporting scheme could be paired with non-binding instruments like industry codes, requiring businesses to report only on certain types of invoices.
The late payments landscape has been shifting since the government announced its policy last year, with large firms such as Woolworths and Coles scurrying to the Business Council of Australia (BCA)’s voluntary payment time code, which commits them to 30-day payment terms on contracts up to $1 million.
The BCA code, which has previously been criticised as insufficient, may still be a part of the new reporting framework, depending on how the government want to implement the scheme.
“The bottom line”
Australian small business and family enterprise ombudsman Kate Carnell says it’s imperative the scheme is accessible for small businesses and that the information can be used to compare different firms.
“The bottom line here is the information has to be useful, small businesses have to be able to assess whether they want to deal with a company or not,” she tells SmartCompany.
Carnell wants to take on the job of managing the payment times register within her office and says regular auditing of reported information would be necessary to ensure information was accurate.
Carnell believes the scheme should incorporate reporting on both payment terms and timeframes while defining small business as those with less than $10 million in annual turnover.
The department is canvassing views on what type of payment information should be reported on by large firms, including payment terms and performance.
Minister for Small and Family Business Michaelia Cash said payment practices, including the practice of building discounts into contracts, also remains an issue.
“One of the issues consistently raised with me as Minister for Small and Family Business has been payment practices,” Cash said in a statement.
“Reports that some large businesses push out payment terms to 60 or even 120 days, or demand discounts just for paying on time, place huge financial and mental stress on business owners.”
Basically, almost every aspect of the policy is up for discussion as the government looks to inform its view on how to move forward.
The Department of Jobs and Small Business is asking for views relating to six sets of questions.
1. What is the preferred scope of reporting? In particular, should reporting be limited to payment practices for small business? If so, how should small business be defined?
The department is tossing up whether to limit the scope of reporting to small suppliers, which would give more precise information about the experience of SMEs, or making it more general to ease the reporting burden on large businesses which might not collect data based on supplier size.
It’s also seeking views on how small business should be defined, noting there are already various definitions with perceived positives and negatives.
2. Who should be obligated to report under the framework? What reporting approach for related entities is going to be most useful for small business?
While businesses with an annual turnover exceeding $100 million are set to be covered by the scheme, the department is seeking views on what types of corporate entities should be covered, whether foreign businesses should also be included, and how it should measure annual financial thresholds.
3. What payment information should be reported under the framework? What information is going to be most useful for small business (for example, standard terms and payment times)?
There’s plenty of information which could be collected by the scheme, but the department is prioritising a balance between useful data and regulatory burdens for large firms.
Feedback is wanted on how reporting on payment terms and performance data is worked into the scheme, as well as several other categories which provide context to those key areas.
Payment terms would involve compelling large firms to disclose the way they pay small suppliers — for example, if they calculate days to pay from when an invoice is received or from the end of a particular month.
Performance data involves an assessment of how well large firms meet their obligations, including the proportion of contracts paid within agreed-upon terms and the proportion paid within a standard timeframe or industry standard.
The department is also asking businesses to provide views on what type of invoices should be included in the scheme, asking whether all invoices paid to small suppliers should be included or just ones deemed “material enough”.
4. How should information be reported? In what situations will small business access the information?
Centralised or decentralised? That’s the question.
A centralised model would require large businesses to report through a central online portal maintained by a “government agency”.
In contrast, a decentralised scheme would allow “qualifying entities” (no word on what that means), to publish a “standardised report” on their own websites.
The department also wants views on how often reporting should be done and the format of the reports themselves.
5. How should the framework be administered? What is the preferred balance between regulatory certainty (through legislation and administrator powers) and flexibility (through standards and self-regulation)?
The way the scheme would be implemented is still yet to be determined, with the government considering several possible legislative models.
That includes a full legislative solution or one that mixes law with industry regulation.
Questions about how much power the scheme would maintain — in other words, how easy it would be to ensure large firms do what they’re supposed to — are also being asked.
“The review is interested in feedback from stakeholders on which powers the framework needs to be effective, and whether these powers should sit with government or industry / third parties,” the department said.
6. Should government agencies be subject to the framework and/or comparable obligations?
Government agencies have already committed to paying small business suppliers within 20 calendar days by July 2019, however, the department wants to know whether government entities should be required to prepare reports under the new scheme.
The entire discussion paper can be accessed here.
Those wishing to make a submission can do so here.