The Government today introduced a strict payment regime on state agencies that obliges them to pay creditors within 30 days or face penalties for tardy payment.
State-owned corporations will be encouraged to adopt the payment regime.
Payments for outstanding accounts are to be made by Government agencies within 30 calendar days or they will face paying penalty interest on the outstanding debt.
The payment policy will be effective immediately. The transition period for the 30 day Payment Policy is expected to apply for six months from 1st July 2011 to allow agencies to make appropriate administrative arrangements for on-time payment.
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Frequently Asked Questions
Frequently asked questions are provided to assist with the implementation of this new policy.
- What is covered by the payment of accounts policy for small business?
- How do you define a small business?
- How do agencies know that an invoice is from a small business under the policy?
- How do agencies verify that a supplier is a small business under the policy?
- How will we know whether a supplier’s small business status changes?
- Can payment terms be less than 30 days?
- Can payment terms be more than 30 days?
- From what date is late payment interest payable?
- Is interest payable on overdue amounts where payment terms other than 30 days have been agreed, in accordance with the policy?
- Are agencies to pay small businesses within 30 calendar days or 30 business days?
- How is interest for late payment initiated?
- How is interest for late payments calculated?
- What is a correctly rendered invoice?
- What happens if the supplier issues an invoice but the goods or services have not been delivered or do not meet the requirements of the written contract?
- Does the payment of accounts policy apply to invoices issued under an existing
contract which specifies different payment terms and interest requirements?
- Is there any dispute resolution process?
- How will this new policy be communicated to small business suppliers?
- Are there any transitional provisions available in applying the new policy on payment of accounts to small businesses?
1. What is covered by the payment of accounts policy for small business?
Agencies are required to pay small businesses within 30 days of receipt of a correctly rendered invoice or statement for goods or services.
The above requirements, however, do not apply where there is an existing contract or standing offer which provides for an alternative time period / interest requirements, in which case the terms of the contract apply. Where existing contracts have longer payment terms, agencies are still encouraged to pay small business suppliers within 30 days, where possible.
2. How do you define a small business?
A small business is an Australian or New Zealand-based firm that has an annual turnover of under $2 million in the latest financial year.
3. How do agencies know that an invoice is from a small business under the policy?
Agencies must provide potential suppliers with the opportunity to identify themselves as a small business on invoicing (i.e. suppliers will be able to self-assess themselves as a ‘small business’, in accordance with this policy, at the date of invoicing). For example, the purchase order issued by the agency could outline the process / requirements for a small business to identify itself to the agency on invoicing (e.g. by requiring the supplier to clearly identify itself as a small business, in accordance with the policy, on the invoice provided to the agency). It is up to the agency to formulate and advise suppliers of the process to identify a small business supplier.
4. How do agencies verify that a supplier is a small business under the policy?
An agency may ask a supplier to demonstrate that it satisfies the definition of a small business under this policy; e.g. by supplying a business activity statement, the latest year’s annual financial statement, letters/certificate from the firm’s accountant/auditor or any other acceptable third-party endorsement. However, an agency may decide to limit this verification to only circumstances where interest will be paid (from a date to be determined), and in all other circumstances to accept the supplier’s self assessment, and pay within 30 days from receipt of a correctly rendered invoice.
5. How will we know whether a supplier’s small business status changes?
A small business will need to self assess itself as a small business at the time of invoicing (i.e. to identify itself as a small business), which therefore will occur on a continuous basis, as goods and services are supplied.
6. Can payment terms be less than 30 days?
Yes, an agency can have an internal policy where payment terms are less than 30 days or negotiate payment terms of less than 30 days under a specific contract with a small business.
7. Can payment terms be more than 30 days?
Yes, but only where the nature of the goods and services or the structure of the purchase make it impractical to require payment within 30 days.
8. From what date is late payment interest payable?
A transition period for the 30 day benchmark policy is expected to apply for six months. This period will allow NSW Government agencies to make appropriate administrative arrangements to ensure their bills from small businesses are paid within 30 days so as not to be slugged with additional penalty interest payments.
9. Is interest payable on overdue amounts where payment terms other than 30 days have been agreed, in accordance with the policy?
Yes. When effective, penalty interest is required in all circumstances where payment is not made ‘within the specified time period’, whether that is within 30 days, or the shorter or longer payment terms, as agreed in the contract.
10. Are agencies to pay small businesses within 30 calendar days or 30 business days?
Payments to small businesses are to be made within 30 calendar days.
11. How is interest for late payment initiated?
Interest will be automatically paid by agencies where payment has not been made within 30 days of receipt of a correctly rendered invoice, where the interest chargeable exceeds A$20. This means that the agency must calculate the interest payable, which must then be certified as correct.
12. How is interest for late payments calculated?
The interest rate is determined under section 22 of the Taxation Administration Act 1996. This is available from the NSW Office of State Revenue website at: http://www.osr.nsw.gov.au/taxes/other/taa/rates/.
Example penalty interest calculation:
Assume the following:
• Penalty interest rate is 13%
• Value of correctly rendered invoice is $200,000
• Payment occurs 15 calendar days after the conclusion of the 30 day period
Interest to be paid to a small business supplier = $200,000 x 13% x 15/365 = $1,068 (rounded to the nearest dollar).
13. What is a correctly rendered invoice?
A correctly rendered invoice is an invoice which:
• is rendered in accordance with all of the requirements of the approved purchase order and, where applicable, the written contract
• is for amounts correctly calculated
• is for work properly performed (i.e. goods received in good order and condition and / or service satisfactorily carried out)
The above is consistent with the Public Finance and Audit Regulation 2010 and Treasurer’s Directions (TD 180). Among other things, the Regulation and TDs require an authorised purchase order, and a certification of the performance of services and rates of charge.
The relevant date from which to determine the date of payment is the date of receipt of the correctly rendered invoice, not the date the agency certifies that it is correctly rendered.
14. What happens if the supplier issues an invoice but the goods or services have not been delivered or do not meet the requirements of the written contract?
In these circumstances, the invoice will not meet the definition of a ‘correctly rendered invoice or statement’. The requirement to pay invoices within 30 days and to pay interest on overdue amounts arises only when a ‘correctly rendered invoice or statement’ has been received.
15. Does the payment of accounts policy apply to invoices issued under an existing
contract which specifies different payment terms and interest requirements?
No. The requirement to pay small business suppliers within 30 days of receipt of a correctly rendered invoice and pay interest on overdue amounts (from a date to be determined) applies, unless an existing contract or standing offer provides otherwise. However, where existing contracts have longer payment terms, agencies are still encouraged to pay small business suppliers within 30 days, where possible.
16. Is there any dispute resolution process?
Yes. Any disputes or complaints should first be raised with the agency’s accounts complaints officer. If the issue cannot be resolved by the accounts complaints officer, the small business supplier should be given the opportunity to refer the issue to the Small Business Commissioner. Inquiries regarding the Small Business Commissioner should be addressed in the first instance to the Department of Trade and Investment, Regional Infrastructure and Services on 9338 6900.
17. How will this new policy be communicated to small business suppliers?
The new policy will be promoted across Government by a number of key agencies. However, in addition, information should be provided on purchase orders issued by agencies (e.g. initially by putting a sticker on the purchase order) and in any regular supplier briefings held by agencies.
18. Are there any transitional provisions available in applying the new policy on payment of accounts to small businesses?
Yes, the new policy does not apply to existing contracts or standing offers where they specify an alternative time period / interest requirements. In these circumstances, the terms of the existing contract apply rather than this policy.
In addition, to allow time for system changes, interest is only payable on overdue amounts, where the account which was paid late was received on or after a date to be determined by the responsible Ministers, but no earlier than 1 January 2012. This allows at least a 6 month transitional period in relation to interest payments. However, during this interim period agencies should still ensure that small business suppliers are paid within 30 days of receipt of a correctly rendered invoice, unless an existing contract specifies otherwise.
Further, agencies are reminded that this policy also encourages payments to other suppliers (i.e. other than small businesses) to be paid within 30 days of receipt of a correctly rendered invoice.