House of Representatives

Payment Times Reporting (Consequential Amendments) Bill 2020

Payment Times Reporting Bill 2020

Explanatory Memorandum

(Circulated by authority of the Minister for Employment, Skills, Small and Family Business, Senator the Hon Michaelia Cash)

[1]
Coalition Government (2019), Backing Small Business Policy Statement

[2]
Small businesses are defined using the ABS definition, i.e. businesses with less than 20 employees. For 2017/18, this accounted for 2,182,065, although only a portion would hold trade credit with large businesses.

[3]
Long payments are defined as payments made 30 days or more after the invoice data

[4]
Data provided by the ATO

[5]
Large business payment times are typically longer than the average, reflecting large businesses greater market power. This estimate may also understate the problems as the Xero figures on trade credit include payments from consumers as well as businesses, and consumers are more likely to pay faster than businesses

[6]
The ASBFEO survey had 2,783 businesses with 2,597 satisfying the ABS definition of a small business

[7]
ASBFEO (2019), Review of Payment, Terms, Times and Practices

[8]

https://www.asbfeo.gov.au/sites/default/files/documents/ASBFEO-SCF-position-paper.pdf

[9]
Barrot, J.N. & Nanda, R. (2018) The Employment Effects of Faster Payment: Evidence from the Federal QuickPay Reform, Harvard Business School Entrepreneurial Management Working Paper

[10]
Murfin, J. & Njoroge, K. (2015) The Implicit Costs of Trade Credit Borrowing by Large Firms, The Review of Financial Studies, Volume 28, Issue 1

[11]
Boissay, F. (2006) Credit Chains and the Progression of Financial Distress, ECB Working Paper No. 573

[12]
Conell, W. (2014) Economic Impact of Late Payments, European Economy - Economic Papers, Directorate General Economic and Financial Affairs, European Commission

[13]
Barrott, J.N. (2015) Trade Credit and Industry Dynamics: Evidence from Trucking Firms, The Journal of Finance, Volume 71, Issue 5

[14]
Results from 241,967 observations for FY15-FY17 using data from Xero Small Business Insights. Performance of each year of the business was grouped into those above and below the average days taken to receive payments, and compared to the average time taken to pay their accounts payable.

[15]
Dr Steven Kennedy (2020) Opening Statement - March 2020 Estimates

[16]
RBA Statistical tables - F5 Lending Rates

[17]
Connolly, E. & Bank, J. (2018) Access to Small Business Finance, RBA Bulletin - September 2018
https://www.rba.gov.au/publications/bulletin/2018/sep/access-to-small-business-finance.html

[18]
Ownership rates have been down a third over the past 25 years for those aged 25-34, which is the key entrepreneurial period of life (Productivity Commission 2018)

[19]
March Quarterly Statement by the Council of Financial Regulators -
https://www.cfr.gov.au/news/2019/mr-19-01.html

[20]
ABS 8167.0 Selected Business Characteristics

[21]
Results are the average receivable days on trade credit for 83,380 firms for years FY14-FY18, after removing for extreme values. Data used is from Xero SBI

[22]
Based on the total number of businesses identified by the ABS as being required to report under this scheme.

[23]
At time of writing, there were 124 signatories in total. ~80 appear on the ATO Corporate Tax transparency report, or were otherwise able to be identified as a large business, which shows approximately the largest 2,200 firms in Australia and is taken as an approximation of the expected group of large businesses

[24]
Measured by whether a business indicated they were signatory to a code in their first report to the UK Payment Practices and Performance Reporting requirements

[25]
Preliminary investigation estimates from ABS based on 2018-19 BAS reporting. Users comparing data from this release with other ABS data should do so with care, as some other ABS data may exclude non-employing businesses or particular industries or sectors.

[26]
The Xero Small Business Insights data analysed does not distinguish the source of an invoice, so direct payments from large to small businesses cannot be observed, and consumer invoices, which are usually paid more quickly, cannot be separated. The latter fact suggests that the proportion of invoices paid within 30 days is likely over-estimated, and the true figure for B2B invoices is higher, and the figure for large business to small business is expected to be even higher

[27]
To check this figure, a similar method was used for the available UK Payment Practices and Performance reporting data. Analysis undertaken in June 2019, using the average time to pay for the 1st report, showed that 61% of businesses paid in excess of 30 days, and these businesses on average made payments in 48 days. An improvement of 61% of payments by 18 days equates to 11 days of improvement, close to the figure estimated from Australia data. The differences in distribution are likely attributable to Xero Small Business Insights data being at the invoice level, while UK data being an average at firm level.

[28]
ABS 8155.0 - Australian Industry, 2017-18.

[29]
Small Business Survey conducted as part of Payment Times Reporting Framework design, n = 301

[30]
Primarily, the UK Payments Practices and Performance Reporting Scheme conducted an impact assessment using a survey of businesses. Their results have been used as a reference point for some estimates presented here where directly comparable, and referred to as the UK Scheme

[31]
Preliminary investigation estimates from ABS based on 2018-19 BAS reporting. Users comparing data from this release with other ABS data should do so with care, as some other ABS data may exclude non-employing businesses or particular industries or sectors.

[32]
Results from the UK Impact Assessment are originally in £ and are quoted here in approximate AUD figures

[33]
The wage of an employee is estimated to be $100,000, and the wage of a senior employee to be $200,000 per year. This is then divided into a per-working day figure

[34]
This is treated as an average figure.

[35]
The daily salary at this level is estimated to be $2,400


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).