Business Payment Practices Act to increase load for directors

The Business Payment Practices Act 2023 (BPPA) requires transparency from big businesses on how quickly they settle invoices.

Natalie Brand, an associate director at KPMG Australia, says the BPPA will benefit Kiwi businesses, particularly SMEs.

“The Small Business Council identified that cash flow was a real issue for small and medium-sized enterprises here in New Zealand,” she says.

Granted royal assent in July 2023, the New Zealand Act follows Australia’s Payment Times Reporting Act, which came into effect in 2021. In New Zealand, the companies expected to report in the first round starting 1 July, 2024, are those who had a turnover of more than $100 million in the two financial years prior. Following that, entities with revenue over $33 million, with third-party expenditure over $10 million, will also be expected to disclose their payment practices, all of which will be made available on a public register. 

Transparency around payment practices reporting focuses on the speed at which suppliers are paid. Overseas, competition is heating up as corporations race against the clock to win favour with stakeholders. In Australia, that’s seeing businesses wanting to get ahead of their competitors.

“Household names are using that as a benchmark, so when the reports are publicly released they're having a look to see what their competitors are doing, and saying, ‘’they've beaten us by two percent and they've paid their suppliers quicker”.

The majority of businesses Brand works with are using Payment Times Reporting as a positive news story. For them, having control of their reputational risk is a positive outcome as they desperately compete to be perceived as ‘the best in the market’ at a time when stakeholders are keeping close watch to ensure they’re spending their money with businesses who are trading ethically and transparently.

“There is the public perception of large businesses not paying small businesses within a standard payment time. People start to question whether they should be buying from a particular company or brand and asking themselves whether they should be working for them if they’re not treating their suppliers fairly.”

Accountability and hefty fines

Brand says the Australian media have used the public register to call businesses to account. 

“There have been quite a lot of damning headlines criticising large businesses for when they pay their suppliers,” she says.

In the UK, payment practices reporting has been conducted over the past six years (since 2017) and Good Business Pays Fast Payer Awards were introduced in 2021. The UK’s Payment Practices and Performance Regulations publicly identify fast, late, and slow payers, giving suppliers a choice about who they want to do business with.

New Zealand firms captured in the legislation will be required to disclose standard payment terms, the average payment timing for invoices and the percentage (by number and value) of invoices paid within certain timeframes.

“It will become obvious that late payments exist where large volumes of payments are made after 51 days, which is the maximum payment term.”

And if you think you’ll get away with meddling with your metrics - the regulators, yet to be announced -will be on the lookout for non-payments and misleading metrics, hitting businesses hard with a $9,000 per day fine, which is likely to increase over time. (*While there won’t be a grace period for fines to be imposed on large entities, the registrar will initially take an education-first approach before looking to issue any infringement notices and fines).

“In Australia, the fines are $94,000 per day for failing to report and at 0.6% of your annual revenue for misleading metrics,” says Brand.

Who gets the final sign off?

Due to the various touchpoints in the legislation, Brand advises that a number of people are nominated to compile the report. In the first instance, someone with knowledge on the group structure, revenue, and payment threshold should be selected to report for BPPA.

A different person needs to agree the payment terms with the suppliers.  A third individual from accounts payable or shared services will need to run the data, followed by someone in data analytics who can identify and pull the relevant data from the enterprise resource planning system (ERP). 

Depending on your metrics, Brand says businesses may also opt to involve a PR person who can push out a press release ahead of the information becoming publicly available.

Importantly, the board needs to be across the report, with one director having final sign-off.

“They need to understand what the reporting is and their obligations. So whilst it does require only one director to sign off the reports, most boards would want visibility of the reports prior to being made publicly available.”

While whole board sign-off isn’t a requirement in New Zealand, Brand says all of the directors and shareholders, as part of their due diligence, should collectively understand and discuss the report ahead of each submission.  The board also needs to determine early on what a ‘just and fair’ payment term looks like as part of their business strategy and consider what information the public would find shocking through public disclosure.

“Due to the level of scrutiny, the board should feel comfortable with how the report has been compiled – and that it sits in line with the latest guidance material because they are declaring publicly that they are happy with the report and that it is factually correct.”

Further information will be available about the reporting process in early 2024, with selected New Zealand entities being called on for consultation.

For more on the Business Payment Practices Act 2023 and associated material, head to MBIE.

For further information on external auditing contact Leon Bowker: lbowker@kpmg.co.nz or read more via KPMG’s report.