News & Thinking

Business Payment Practices Bill introduced to Parliament

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Chris Dann

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Chris Dann

A 2018 survey commissioned by the Ministry of Business, Innovation & Employment (MBIE) showed 87% of businesses surveyed have experienced cash flow issues after receiving late payments, or receiving requests for deferred payment.

MBIE refers to anecdotal evidence of larger firms exploiting their bargaining power, setting payment terms that advantage themselves at the expense of their smaller suppliers, who don’t feel able to ask for more reasonable terms.

As a result, last week the ‘Business Payment Practices Bill’ was introduced to Parliament.  According to the explanatory note:

The purpose of this Bill is to … bring transparency to business-to-business payment terms and practices in New Zealand. That will lead to businesses having better information to inform their decision-making when trading and incentivise larger businesses to mitigate reputational risk by improving their business payment practices.”

The Bill requires large firms, with an annual turnover of over $33 million (including GST), to report six-monthly on their payment practices in relation to late and overdue payments and on their payment terms, on a public register administered by MBIE (intended to be searchable or sortable by specific industries), and on their own website.

The current Bill does not make a judgement on, or impose any penalty for, payment practices; nor will it regulate maximum payment times. However, the Bill does propose penalties for incorrect or misleading information about payment practices and the explanatory note warns that the regime will help to build an evidence base on payment practices which will be used to determine whether further regulatory intervention on payment terms is warranted.

Yesterday, MBIE issued a consultation document (link) seeking feedback on the detail to be included in the regulations that will give effect to this new disclosure regime—for example, what specific information will be required; what periods will be reported on; how we can make it as easy as possible for reporting entities to disclose their payment information; and whether any groups of entities should be exempt. Submissions are due by 26 February 2023.

This new ‘payment practices’ regime follows hard on the heels of recent changes to the Fair Trading Act 1986 (which took effect in mid-August) to prohibit “unfair contract terms” in small trade contracts (<$250,000 trading relationship) and “unconscionable conduct” (undefined, but said to constitute ‘business activity that substantially departs from Aotearoa New Zealand’s generally accepted or expected standards of business conduct’), together forming a package of reform to protect small businesses from perceived unfair behaviour in their trading relationships. Businesses will need to review and, if necessary, adjust their contract terms and practices.

For further information, please get in touch.