By Robyn Walker & Viola Trnski    

If your business has revenue exceeding $33 million then you may be subject to new reporting rules around your business’s payment practices from 2024.

The Business Payment Practices Act 2023 (the Act) and Business Payment Practices Regulations 2023 (the Regulations) intend to improve transparency around business-to-business payment practices by creating a publicly available information register for large businesses. If an entity’s revenue exceeds $33 million in the last two financial years, and the operating expenditure is $10 million or greater (excluding wages and salaries, and related-party payments) then the entity will be required to report certain information under the Act.

The requirement to report under the Act is phased in, with the rules initially only applying to businesses with total revenue in excess of $100 million in the two preceding financial years, before expanding out to capture all large businesses. The first six-month disclosure period will run from 1 July 2024 to 31 December 2024 and the second disclosure period will run from 1 January 2025, and from this point onwards the $33 million revenue threshold will apply.

The accompanying Regulations, issued on 28 August 2023, define exactly what needs to be reported on and when. The Ministry of Business, Innovation and Employment (MBIE), the administering body, has also released some guidance.

Payment practices information

The Act requires “payment practices information” to be disclosed by reporting entities. The Regulations specify what is included within payment practices information, being:

• The average payment time, being the aggregate payment time for the total number of invoices paid in full during the disclosure period divided by the total number of invoices paid in full during the disclosure period.

• The percentage of the total number of invoices paid in full within the following bands: 0-15, 16-30, 31-60, 61-90. 91-120, and more than 120 days.

• The percentage of the total value of invoices paid in full within the following bands: 0-15, 16-30, 31-60, 61-90. 91-120, and more than 120 days.

• Whether the entity allows e-invoicing as an option for suppliers (this is a yes/no response).

• Any standard payment terms set by the entity.

Entities will also be able to include details of any preferential payment terms available to small businesses and further contextual information if they wish to do so.

Payment times are measured in calendar days, starting from the date of receipt of the invoice until the date it is paid in full. Reported values are rounded to one decimal place, in New Zealand dollars, and GST inclusive.

An invoice is considered to be received as soon as it has been provided to the entity in accordance with the invoicing requirements of the relevant contract. If an entity is unsure of the date of receipt of an invoice the date on the invoice may be used. However, in MBIE guidance they note this should not be standard practice. Entities are expected to have systems that accurately capture invoice details.

What is an invoice?

An “invoice” is a written or electronic document issued to the entity that:

• relates to the supply of goods or services before they are paid for, and

• notifies an obligation to pay the amount set out in the document.

This definition differs from what businesses may be used to from a GST perspective, where an invoice is defined as ‘a document notifying an obligation to make payment’. Businesses needing to apply the rules might need to consider how they can identify what invoices relate to goods and services that have already been supplied, versus invoices to prepay for goods and services which have not yet been received.

Exclusions to reporting requirements

Under the Regulations certain payments do not have to be disclosed:

• Credit card payments

• Foreign currency transactions

• Transactions within a corporate group

• Royalty payments to the Crown

• Invoices where a credit note has been given

Under the Act, the following payment types also do not need to be reported:

• Salary or wages to employees or office holders

• Tax payments

• Rent and lease payments

• Charges related to electricity, gas, telecommunications or other utilities

• Local body rates and changes

Guidance from MBIE states that while the above items do not need to be reported, businesses are able to report some or all of the transactions, provided they do so consistently. This flexible approach will help businesses who would incur compliance costs in isolating and removing these amounts from calculations.

Two percent variation for errors or omissions

If an entity becomes aware of an error or omission in a disclosure that results in a substantial departure from the reporting requirements, they must notify the Registrar of Business Payment Practices and correct the error.

The Regulations allow for a “permitted departure” if the resulting difference between the reported and actual amount, whether a figure or percentage, is 2% or less. If the difference is within this permitted departure, notifying the Registrar is not required.

Fines and infringement fees

The Act allows non-compliance to be penalised through either an infringement fee, a fine imposed by a court or a pecuniary penalty. The Regulations specify that infringement fees can range between $1,000 and $3,000. The maximum fine that can be imposed is $9,000. The Regulations set out a standard form for infringement and reminder notices.

This is separate from the pecuniary penalties that can be issued under the Act, which can be up to $50,000 for an individual, and up to $500,000 for an entity.

What happens now?

While the Act has been passed, regulations issued and a start date is in place, during the Act’s Parliamentary processes National Party and ACT MPs indicated they would repeal the legislation if they formed the next Government. However, neither party has specifically singled out these rules as an immediate priority as part of the election campaign, therefore if these parties do form the next Government it’s still not yet clear that these rules will actually be repealed prior to the first reporting period. It would therefore be prudent for in-scope large businesses to start considering the health and hygiene of their accounts payable processes and whether the data required to be reported can be easily obtained and accurate calculations performed.

A Regulatory Impact Statement prepared by MBIE indicated that through the consultation process they had received feedback that implementation costs for reporting entities could be high, particularly for businesses needing to change processes to start collecting invoice receipt dates, and those running multiple accounts payable systems across a corporate group.

In developing the Regulations, MBIE was informed by reporting requirements in Australia, and where possible they have tried to harmonise requirements with the Australian regime. The Australian regime has been running for a few years and businesses faced significant compliance costs in preparing for the first disclosure period. As a result, Deloitte Australia developed innovative analytic tools to assist with reporting, as well as obtaining insights to improve payment performance. Once there is greater certainty that these rules will become a feature of the New Zealand landscape, these tools will be adapted for use here.

While we wait for certainty, it is worth reviewing your current payment systems and whether you can optimise and consolidate any divergent payment processes. This might look like mapping your accounts receivable and accounts payable systems, policies, and processes, as well as identifying key risks, controls, and gaps that would enable you to meet the reporting requirements (for further detail, see this article).

If you have any queries, please contact your usual Deloitte advisor.