The Business Payment Practices Act 2023 (‘the Act’) was enacted on 26 July 2023. It will require certain entities (‘reporting entities’) to publicly disclose specific information about their payment practices.
Making up over 97% of all businesses in New Zealand, small businesses often do not have the financial resource or market influence to cope with late or long payment times. Payment delays from customers can create significant cashflow problems. The purpose of the Act is to provide greater transparency in business-to-business payments and enable members of the public and other entities to access information about those payment practices, so that they can make informed decisions about who they want to do business with.
An entity will be a reporting entity and subject to the disclosure requirements under the Act if, at each of its two preceding accounting periods, it had (together with its subsidiaries):
- total revenue of more than NZ$33m, and
- total third party expenditure (excluding salaries and wages) of at least NZ$10m.
A reporting entity will be required to make disclosures every six months on a publicly searchable register. The first disclosure period runs from 1 July 2024 – 31 December 2024, with the second disclosure period running from 1 January 2025 – 30 June 2025. However, only reporting entities which had (together with its subsidiaries) total revenue exceeding NZ$100m at each of its two preceding accounting periods are required to disclose from the first disclosure period commencing 1 July 2024. This phased approach provides additional time for smaller reporting entities to transition to the new rules, for example, to change or put in place new processes and systems to be able to comply. Reporting entities will have up to three months after the end of a disclosure period to file their disclosures.
The below summarises the different types of information that will be required to be disclosed by a reporting entity every six months:
- The average payment time for invoices (starting from when invoices are received to when paid in full).
- The percentage of the total number of invoices paid in full within specified day periods.
- The percentage of the total value of invoices paid in full within specified day periods.
- Whether the reporting entity allows other entities to use e-Invoicing.
- Whether the reporting entity uses standard payment terms and what those terms are.
There are a number of exclusions (i.e. information not required to be disclosed) from the disclosed information for items such as: salary/wages, tax, rent or lease, utilities charges, transactions not in NZD and intra-group transactions.
Penalties will apply for non-compliance, including up to $9,000 for failing to make a disclosure, and up to $50,000 for an individual or $500,000 for an entity for filing false or misleading information.
If your business meets the definition of a reporting entity, it is time to start considering what internal processes will need to be implemented to ensure compliance with the Act. For small businesses, it won’t be too long before you’ll be able to search the payment performance of some of your suppliers.
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