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The review makes 13 recommendations for a comprehensive overhaul of a scheme that aims to reduce the time small businesses wait to be paid.
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Payment reporting regime slammed as ‘impenetrable failure’
04 September 2023
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11 minute read
The Payment Times Reporting Scheme has been slammed as an onerous regime with impenetrable data that has failed to achieve its goal of reducing the time small business suppliers wait to get paid by big business.
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The independent review of the scheme by Dr Craig Emerson said the reporting regime was unwieldy and the resulting data “cannot even reveal a reporting entity’s average payment time to small-business suppliers and how often it pays on time”.
It said payment terms had fallen only slighty and the proportion of invoices paid in more than 60 days had shown little improvement despite a minor increase in the proportion paid within 30 days.
As a consequence, small business had barely used the system, compliance with the scheme was in decline and it made 13 recommendations that added up to a “comprehensive overhaul”.
The scheme was introduced in January 2021 and was a “measured and proportionate response” to the power imbalance between large and small businesses.
However, the Payment Times Reporting Scheme (PTRS) was a “poorly functioning reporting scheme” compromised by “unwieldy legislative requirements” that “create a confusing, clunky and cluttered dataset”.
“The Payment Times Reports Register publicly displays 54 reporting fields for each of the more than 35,000 reports, which totals almost 2 million reporting fields across the four reporting cycles,” the review said.
“Despite this volume of data, the register cannot even reveal a reporting entity’s average payment time to small-business suppliers and how often it pays on time.”
“Based on the information the register can display, at an aggregate level, the PTRS does not appear to have materially reduced the payment terms or times of large businesses to their small-business suppliers.”
“The average payment term – the contractual time in which a large business agrees to pay a small-business supplier – has fallen by less than two days, from 37.5 days to 35.8 days. And while the proportion of invoices paid within 30 days has increased slightly, from 62.9 per cent to 67.6 per cent, the proportion of invoices paid in more than 60 days has shown little improvement.”
“The impenetrability of the data has also limited media coverage and any associated reputational pressure on large businesses to improve their payment performance.”
Fewer than 1 per cent of Australia’s 2.5 million small businesses had used the register and its accompanying dashboard, which had been accessed less than 20,000 times since the PTRS commenced.
The scheme was also poorly designed because small business seldom had the luxury of rejecting work from big business because of poor payment performance.
“Inherent power imbalances between large and small businesses prevent small businesses picking and choosing their large-business customers.
“It follows that the object of the act – to make information publicly available in order to ‘enable small businesses to make more informed decisions about potential customers’ – is fundamentally unrealistic and has also not been met.”
However, it said there was scope for the PTRS to deliver more accessible, accurate and useful information that would incentivise quicker payments by large businesses while also reducing the administrative burden.
“As a priority, the review recommends a comprehensive overhaul of the PTRS to make the scheme simpler and more useful.”
These would include:
- Amending the objects of the Payment Times Reporting Act to “emphasise that the primary purpose of the PTRS is to improve the payment terms, times and practices of large businesses in respect of their small-business suppliers and clarify that the purpose of making the reported information publicly available is to exert reputational pressure on large businesses.”
- Simplifying which entities had to provide a payment times report.
- Streamling and improving the quality of reported data and enhancing its presentation.
The overhaul should be combined with an effort to use the reputations of large businesses to foster a culture of prompt payment by publicising the worst and best payers – an approach that had been successfully used in the UK.
“This approach aims to attract the attention of the media and the general public and to encourage large businesses to make paying small-business suppliers quickly an integral part of their environmental, social and governance (ESG) obligations.”
It also recommends prohibiting unfair payment practices, such as very late payment or the predatory use of supply chain finance, as well as supporting small businesses to act against unfair payment-related contract terms.
An increase in e-invoicing would help small businesses get paid faster and the Commonwealth procurement supply chain should support prompt payments.
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