Faster Payment Terms for small suppliers to NSW Government

Cashflow is the lifeblood of any business; employees and suppliers must be paid regardless of when customers settle their bills. The NSW Government is one of the largest customers in the economy and its payment practices can have a significant impact on the health of businesses, particularly small business.

The NSW Treasury recently reissued the Faster Payment Terms policy (Policy)[1], which requires most agencies to pay small business suppliers within five business days of receiving a correctly rendered invoice. This article reviews the Policy and its impact on agencies and their suppliers.

Payment times for small business have been getting faster

The NSW Government has been progressively reducing payment times for its suppliers. In December 2018, the Government introduced the Faster Payment Terms policy (Initial Policy), which required subject agencies to pay invoices within 20 calendar days. In January 2020, this timeframe was shortened to five business days as part of the NSW Government’s response to the COVID pandemic, and more specifically:

• subject agencies were required to pay at least 80% of supplier invoices from registered small businesses for purchases up to $1m within five business days of receipt of a correctly rendered invoice, and
• provide required data for reporting purposes.[2]

The Initial Policy defined a ‘registered small business’ as one recognised by the NSW Small Business Commissioner and with 20 or fewer full time equivalent employees[3].

In comparison, the corresponding Australian Government policy[4] requires payment within five business days where both the supplier and agency use the Pan-European Public Procurement On-Line (PEPPOL) framework.  Otherwise, payment must be made within 20 calendar days, with interest payable to suppliers if this timeframe is not met[5]. While the Initial Policy arguably set a tighter timeframe than the Australian Government policy, it did not include a requirement for agencies to pay interest for late payments.

NSW Treasury review of Faster Payment Terms policy

The NSW Treasury conducted a review of the Initial Policy in 2022 (Review), resulting in a report[6], that found that 97.6% of payments made by NSW Government agencies to small businesses were made within the five business days’ time limit between July 2021 and June 2022. This figure significantly exceeds the 80% target.  However, the review noted the frequent use of credit cards for low-value transactions (up to $10,000), which is instantaneous, may skew the data, revealing that delays were more common for higher value transactions[7].

The review proposed several recommendations:

• Agencies should capture and report more data on payment types for detailed analysis.
• Set a target of 80% compliance with five business day terms for all payments not made by credit card within two years.
• NSW Treasury should consider requiring agencies to pay interest to encourage timely payment of significantly overdue invoices (i.e., over 30 days)
• Standardise invoicing requirements across agencies to simplify the submission of a ‘correctly rendered invoice’ for suppliers.
• Transfer policy ownership from the Small Business Commission to NSW Treasury, allowing the Small Business Commissioner to focus on advocacy and oversight of agency compliance with small business policies.

An action plan for small business

In February 2024, the NSW Government announced its NSW Charter for Small Business (Charter)[8], providing a framework for the way NSW agencies would support small businesses. The Charter relevantly includes a commitment to[9]:

• deliver faster payment to small businesses
• facilitate small business participation in government procurement, including helping to build tender readiness and simplifying the process and requirements for small business to tender
• increase tender weightings for small business, local content, job creation and ethical supply chains, which we discussed in our procurement reform series (see here)
• enhance engagement with small business in relation to new policy and regulations, and
• develop and apply performance metrics to agencies.

A new (ish) Faster Payment Terms policy

Following the release of the Charter and in response to the Review’s recommendations, the NSW Treasury has recently re-issued the Policy, highlighting the shift in policy ownership. The key changes from the Initial Policy include:

• A separate target of payment of 80% of eligible invoices from registered small suppliers within five business days of receipt of a correctly rendered invoice by 30 April 2027.
• Mandatory reporting of non-compliance with mandatory provisions of the Policy from 31 October 2025.
• Modification of some key definitions, including:
  • a more detailed description of ‘correctly rendered invoice’, including specification of compliance with ATO requirements
  • a clearer definition of ‘small business’, that excludes subsidiaries or associated entities of medium or large businesses and to expressly include New Zealand small businesses.
• Different specifications regarding which agencies are (generally) subject to the Policy—in this case all Government Sector Finance (GSF) agencies[10].
• The specification of entities that are not subject to the Policy has been clarified.
• There is now guidance for agencies subject to the Policy to consider the impact of late payment on suppliers when deciding whether to pay interest. This represents a subtle shift in tone.

Conclusion

The NSW Government has made significant progress to expediting payment to its suppliers. However there are still concerns regarding high-value procurement, with instance of significant payment delays. The incremental development of the Policy, as part of a broader agenda by the NSW Government to support small business, is designed to target remaining areas of delay and ensure agencies collect and report the necessary data needed to evaluate progress more accurately. 

[1] TPG25-04 NSW Government Faster Payment Terms Policy [Link].

[2] TPG25-04 NSW Government Faster Payment Terms Policy [Link], Appendix 2.

[3] Ibid

[4] RMG 417 Supplier Pay On-Time or Pay Interest (Department of Finance: 2024) [Link].

[5] Ibid, Part 1.

[6] Faster Payment Terms Review – Report (NSW Treasury: February 2023) [Link].

[7] Report p 18.

[8] NSW Charter for Small Business (NSW Government: February 2024) [Link].

[9] Charter pp 7,8.

[10] Government Sector Finance Act 2018 (NSW), s.2.4.