Legal development

"Fundamentally unrealistic": a review of the Payment Times Reporting Act 2020

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    It appears that the Payment Times Reporting Act 2020 is set for a major overhaul following an independent review of the Payment Times Reporting Act 2020 Cwlth (Act) being completed.

    The review found a number of issues and concerns with how the Act and the Payment Times Reporting Scheme (PTRS) is being implemented including that:

    • the primary object of the Act, which is to make payment times information publicly available in order to “enable small businesses to make more informed decisions about potential customers”, has not been met and is fundamentally unrealistic;
    • the object of the Act to make payment times information publicly available in order to “create incentives for reporting entities to improve their payment terms and practices" has not been met;
    • the unwieldy legislation setting out the data collection requirements and procedures has made the information gathered almost useless; and
    • some of the concepts used in the Act (such as total income, the requirement for individual entities of a corporate group to report and the requirement to include credit card transactions) has created an unnecessary administrative and compliance burden on corporate groups, while also creating enforcement difficulties for the Regulator, without delivering a commensurate benefit, which reduces the Regulator’s efficiency and effectiveness in targeting non-compliance.

    As a result, the review recommended that a comprehensive overhaul of the operation of the Act and the administration of the PTRS be undertaken. As part of this overhaul, the review has recommended:

    • that an explicit responsibility to name and shame poor payers and praise fast payers publicly be given to a government or non-government entity other than the Regulator; and
    • that the Regulator be relocated to an established regulator of business activity with a strong reputation for enforcement in order to motivate high rates of compliance with the PTRS.

    The review has also recommended proposed reforms to unfair contract terms and unfair trading practices.

    Whether these proposals will be implemented remains to be seen.

    Further details

    The review noted that the PTRS is a poorly functioning reporting scheme with unwieldy legislative requirements. The reporting requirements are onerous for reporting entities and create a confusing, clunky and cluttered dataset. In particular:

    • the PTRS does not appear to have materially reduced the payment terms or times of large businesses to their small-business suppliers; and
    • the impenetrability of the data has also limited media coverage and any associated reputational pressure on large businesses to improve their payment performance.

    Recommended reforms

    The review recommends an integrated set of 13 reforms. These reforms are designed to deliver improved payment outcomes for small businesses and increased productivity. As a priority, the review recommends a comprehensive overhaul of the PTRS to make the scheme simpler and more useful. The primary recommendations are:

    • Amend the objects of the Act: Amend the objects 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.
    • Simplify which entities must provide a payment times report: Consolidate reporting at the corporate group level to remove an unnecessary regulatory burden and improve the accessibility and useability of the register. This should occur by requiring consolidated reporting for corporate groups on the payment performance of all members by the parent entity, requiring reporting on operating segments for Australian operations, and reframing the $100 million threshold to a measure of revenue rather than of income.
    • Improve the operation of the Small Business Identification Tool: Explore the use of Commonwealth data sources and allowing manual corrections by reporting entities to improve the accuracy of the Small Business Identification Tool.
    • Streamline and improve the quality of reported data: Simplify reporting requirements and make the process of submitting reports more sophisticated so as to improve consistency and make reported data clear, relevant and easy to analyse.
    • Exclude credit card transactions from trade credit: Expressly allow a reporting entity with an internal policy preventing the use of credit cards for trade credit arrangements to exclude credit card transactions from payment times reports, introduce a value threshold for credit card transactions so that transactions that are below the threshold can be excluded from payment times reports, amend specific content requirements for payment times reports, and create a more sophisticated submission portal for payment times reports to enable auto filling, data validation and mandatory reporting fields as a priority.
    • Name and shame: Provide for an explicit responsibility to name and shame poor payers and praise fast payers publicly to be given to a government or non-government entity other than the Regulator.

    Author: Miriam Kleiner, Partner.