Payment performance tracker to December 2021

Introduction

The Federal Government has published the first reporting from large organisations on their small business payment terms and times.

The data was released in August 2022 and reports on the period January to December 2021. From this data, BDO has analysed the reports for the six-month periods ending June 2021 (H2 FY21) and December 2021 (H1 FY22).

In total, 15,982 reports have been lodged by large organisations since the Payment Times Reporting Scheme was introduced.

BDO’s half yearly Payment Performance Tracker, which analyses the payment practices of large organisations, has revealed:

  • Large organisations paid 69% of their small business suppliers and service providers within 30 days during H1 FY22, an improvement of 3% compared to 66% in H2 FY21
  • The percentage of small businesses paid after 60 days decreased from 9% in H2 FY21 to 7% in H1 FY22.

BDO’s analysis of the data shows two key trends:

  1. Location: A higher relative percentage of companies based in New South Wales and Western Australia were observed as paying their small business suppliers slower in H1 FY22 compared to H2 FY21, which contrasts with Queensland-based companies.
  2. Industries: A noted deterioration in payment times was observed in the construction industry, with small business suppliers being paid slower in H1 FY22 compared to H2 FY21. This was particularly noted in the housing construction sector and no doubt reflects the distress in the sector.

Background to payment times reporting in Australia

The Australian Government has introduced the Payment Times Reporting Scheme (PTRS).

Starting on 1 January 2021, the scheme requires large organisations and certain Government enterprises to report on their small business payment terms and times.

Read our recent article explaining the background of the legislation.

Refer to our business guide on preparing for the payment times reporting scheme.

The trends

Australia’s largest companies

The reporting includes Australia’s largest and best-known companies, such as Telstra, Wesfarmers, Coles, BHP, Woolworths and Fortescue.

With the exception of Fortescue Metals, all of these companies have increased the percentage of small businesses paid within 30 days, with Telstra improving by 21% and Woolworths improving by 11%.

Coles is noticeably slower to pay small businesses than the largest Australian companies and the average of all reporting companies, paying 7% less of their small businesses within 30 days.

bar graph showing percentage of small business invoices paid within 30 days
Table – percentage of small business invoices paid within 30 days (click to enlarge)

Analysis by industry

A graph showing percentage of small business invoices paid within 30 days by industryTable 2 - percentage of small business invoices paid within 30 days by industry (click to enlarge)

The average percentage of payments made by large businesses within 30 days was 69.9% in H1 FY22, a modest improvement from the 67.1% reported in H2 FY21. A slight improvement was also seen in the percentage of payments made by large businesses after 60 days, which was 7.9% in H2 FY21, improving to 6.9% in H1 FY22.

The manufacturing sector was the sector with the weakest payment practices reporting metrics, although some improvement was noted. H2 FY21 figures show that 53.2% of large businesses paid within 30 days, and 14.4% paid later than 60 days. In H1 FY22, 55.8% paid within 30 days, and 13.1% paid after 60 days.

Another sector with slow payment times was the construction sector. This is not unexpected given the current stress experienced in that sector, with 54.1% of invoices paid within 30 days in H2 FY21 and 58.1% in H1 FY22. The Construction sector has a reputation for being slow payers, and the data certainly reflects this.

Government (public administration) and the financial services sectors lead the way with strong metrics in payment times.

The agriculture sector was the only sector to noticeably deteriorate between H2 FY21 and H1 FY22. Within this sector, payments made within 30 days reduced from 72.9% in H2 FY21 to 65.0% in H1 FY22. However, this is still significantly better than the construction and manufacturing sectors. In recent years, the industry has been tested by fires, floods, and labour shortages, and no doubt there is a link between these events.

Failure to submit

The enforcement day for Civil Penalties was 1 January 2022. Reporting Entities failing to report by the specified time has a maximum penalty of:

  • 60 penalty units for an individual ($13,320)
  • 300 penalty units for an incorporated entity ($66,600).

These penalties can be applied for each day the entity does not comply and starts from the end of the three-month period they have to submit a report. As an example, if an incorporated entity (body corporate) was nine days late in submitting a Payment times report they could be subject to a penalty of up to a maximum of 2,700 penalty units (c. $600,000).

Reporting for the half year to June 2022

The deadline for lodging payment times reporting for the half year to June 2022 (H2 FY22) has closed, and we are expecting the results from those reports shortly.

With increasing market pressure, increasing interest rates, ongoing inflation and decreasing consumer sentiment it will be interesting to observe the results of the next round of reporting. We expect that terms may start to stretch out again which means businesses continued focus on cash hygiene will be critical.

Conclusion

Although the construction industry was observed to show slower payment reporting times, our analysis suggests that most industries have demonstrated a good level of resilience despite the significant difficulties companies have faced due to COVID-19.

Communication with key customers and suppliers is critical over the coming months. As always, we encourage businesses to regularly review the data set in relation to key customers and clients, as it provides a good indication of payment performance trends and potentially highlights possible credit risk. We will continue to monitor the trends over the coming months.

What should your business be doing?

The current climate offers an opportunity for businesses to rethink their payment practices and optimise overall working capital management to counterbalance any impact from extended payment periods.

These are our three key recommendations for rethinking your payment practices:

  1. Fully understand your obligations or potential future obligations for reporting and ensure a process is defined for accurate and timely reporting
  2. Use payment practice data to drive improvement in procurement processes and debt collection to ensure timely payment of your invoices by your customers
  3. Review your payment term model to support strong cash flows in your supply chain.

For more information, please contact your local adviser.