Government introduces legislation to encourage businesses to pay promptly

Friday, November 25, 2022

Cashflow is crucial to the financial health of every business. Where there are unexpected delays in obtaining payment for good or services already provided, businesses can suffer and, possibly, fail.

The Government has introduced new legislation, the Business Payment Practices Bill, which aims to improve transparency about business-to-business payment practices, and allow people to make informed choices about which large businesses to engage with.

The Bill will apply to entities with more than $33 million in revenue (including GST) for two or more consecutive accounting periods. Those entities will be required to provide information about:

  • invoices received or paid by the entity during that period, including information about the time taken to pay invoices, and the proportion of invoices paid in full during that period;
  • invoices issued by the entity during that period; and
  • any other information specified by the regulations about the entity’s payment practices during that period.

If the entity is part of a group, the information must be provided for the group as a whole, each qualifying entity of that group, and each subsidiary of that entity.

This will allow other businesses to assess the payment processes of the qualifying entities, to determine whether they want to do business with them.

The Ministry of Business, Innovation and Employment (MBIE) will establish a Business Payment Practices Register, where this information will be publicly available. Each qualifying entity will also be required to publish this information on their own website.

MBIE will be able to grant exemptions from these requirements, where there is a good reason that outweighs the interests of the public in having the information. There is no indication yet of what exemptions will be available, but might, for example, cover situations where a business is large but only deals with one or two other entities.

The Bill includes the power to issue infringement notices, and serious breaches could result in prosecution and fines of up to $50,000 for an individual and $500,000 for the entity involved.

The Bill has just had its first reading in Parliament, and has been referred to the Economic Development, Science and Innovation Select Committee for consideration. Submissions on the Bill are now open, and can be made until 8 January 2023.

While the Bill is still being considered by Parliament, MBIE is already consulting on the content of the regulations that will support the Bill. Particularly, they are looking for views on:

  • what payment practices information and measures should businesses need to report on;
  • what time period should be covered by each report, to make it easier to compare different businesses payment practices; and 
  • what entities should be exempted and on what grounds.

Submissions on the regulations can be made directly to MBIE, and are due by 26 February 2023.

If you have any questions about the Bill, please contact a member of our Commercial Law team.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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