Supplier Pay On-Time or Pay Interest Policy (RMG 417)

Supplier pay on-time or pay interest policy

Non-corporate Commonwealth entities must make payment to a supplier within 20 days, following receipt of a correctly rendered invoice issued under a contract valued at A$1 million (GST inclusive) or less.

The policy is mandatory for non-corporate Commonwealth entities and corporate Commonwealth entities are encouraged to apply the policy.

Where payment is not made in full within the maximum payment terms, the non-corporate Commonwealth entity must pay interest to the supplier on the outstanding amount, where the amount of interest accrued is more than A$100 (GST inclusive).

The policy facilitates timely payment to suppliers, assists with their cash flow and reduces the cost to business in supplying to the Commonwealth. Entities are encouraged to implement efficient and timely receipting and payment practices to ensure that supplier payments are made as quickly as possible.

Existing policy effective up to 31 December 2019

Additional Information

Updated Payment Policy - 1 January 2020

On 7 November 2019, the Government announced it would amend Resource Management Guide (RMG) 417 - Supplier Pay On-Time or Pay Interest Policy to include five day payment terms for contracts valued up to $1 million, where both the entity and the supplier have Pan-European Public Procurement On-Line (PEPPOL) compliant e-Invoicing capability.

In addition, we have taken the opportunity to merge RMG 416 - Facilitating Supplier Payment Through Payment Card into the amended RMG 417. This now consolidates all supplier payment arrangements into the one policy document.

The amended RMG takes effect from 1 January 2020 and will replace the current RMG 417 (dated July 2019 provided above).

RMG 417 - In effect from 1 January 2020:

For more information on e‑Invoicing, see the Australian Taxation Office’s website.

Audience

This guide is relevant to all non-corporate Commonwealth entities (NCEs). It is particularly relevant to Chief Financial Officers (CFOs) and their staff, and officials who are responsible for the NCEs internal controls and processes.

Corporate Commonwealth entities (CCEs) are encouraged to apply this policy.

Key points

This guide:

  • replaces RMG 417 (dated 2016): Supplier Pay On-Time or Pay Interest Policy;

  • outlines the Government’s policy on NCE payment timeframes for invoices arising from procurement contracts to non-government individuals and entities; and

  • uses terms as defined in the Commonwealth Procurement Rules.

Resources

This guide is available on the Department of Finance website.

Other relevant publications include:

Part 1 – Policy

  1. NCEs must make payment to a supplier within the maximum payment terms, following the receipt of a correctly rendered invoice issued under a contract valued at A$1 million (GST inclusive) or less. The maximum payment terms are 20 days unless shorter maximum payment terms are agreed between an NCE and a supplier.

  2. When an NCE has not made payment in full within the maximum payment terms it must pay interest to the supplier on the outstanding amount, if the amount of interest accrued is more than A$100 (GST inclusive).

  3. If an NCE has a written contract with a supplier, the contract must include clauses that reflect this policy. Any written approach to market documentation must do the same. This policy still applies even if a written contract or approach to market fails to include clauses that reflect this policy or if no written contract exists between the NCE and the supplier.

Part 2 – Guidance

  1. The policy facilitates timely payment to suppliers, assists with their cash flow, and reduces the cost to business in supplying to the Commonwealth.

Limits of the application of this Policy

  1. This policy does not apply if:

    • procuring and consuming goods and services overseas;

    • procuring real property including leases and licences;

    • the funding source for the procurement is an administered appropriation;

    • the nature of the goods and services being procured, or the structure of the procurement, would make it impractical for the policy to be applied. E.g. where the procurement occurs under standard terms and conditions put forward by the supplier rather than the NCE;

    • prior to the date of effect of this policy, a contract or standing offer was already in place or in the process of being negotiated;

    • procuring from a Commonwealth entity; or

    • payment arises from a non-procurement arrangement, such as a grant.

Determining the Value of a Contract

  1. All contract options should be taken into account when determining the value of the contract, as should any GST payable by the NCE in relation to the contract.

  2. If the value of the contract is not known, e.g. if it is a deed of standing offer, it should be assumed for the purposes of this policy that the contract is valued at $1 million (GST inclusive) or less, unless it is reasonable to assume otherwise.

Paying and Reporting Interest

  1. When interest is payable, NCEs should make a self-generated interest payment to the supplier for any outstanding simple interest accrued. An online calculator, available on the Department of Finance’s website, may assist entities calculate penalty interest.

  2. NCEs may agree to pay interest in other circumstances or constrain the arrangements in those circumstances.

Calculating Interest

  1. Interest is payable at the general interest charge rate available on the ATO’s website, calculated in respect of each day from the day after payment was due up to and including the day that payment was made. If the maximum payment terms fall on a
    non-business day, payment is not due until the next business day.

  2. Interest should be calculated on GST inclusive amounts, however interest itself is not subject to GST.

Example of calculating Interest

  1. An NCCE makes a payment 33 days after receiving a correctly rendered invoice, with maximum payment terms of 20 days. The value of the unpaid amount is $100,000 and the total contract was valued at $1 million (GST inclusive) or less.

    • assume the relevant daily general interest charge rate is 0.02339726% (current rates are available on the ATO website and are updated quarterly);

    • the value of the unpaid amount is $100,000; and

    • payment occurs 13 days after the conclusion of the 20-day payment period (day 33) specified in the written contract. The date was determined based on the date the correctly rendered invoice was received and the day that the payment was made by the NCCE.

    • interest = $100,000 x (0.02339726 / 100) x 13

      = $304.07

Part 3 – Example Draft Contractual Clauses

  1. The following clauses provide an example of the type of clauses which reflect the policy and may be appropriate to include in relevant contracts valued at A$1million (GST inclusive) or less. These clauses are an example only and entities may draft their own clauses to implement this policy. If entities do use the model clauses, care should be taken to ensure that the model clauses are correctly adapted to the relevant contract – e.g. by ensuring they are consistent with the language used in the contract and do not conflict with other clauses and definitions elsewhere in the contract.

Example clause to establish 20-day payment terms and late interest

X. Payment Terms

X1. The non-corporate Commonwealth entity will pay the Supplier within 20 days after receipt of a Correctly Rendered Invoice. If this period ends on a day that is not a Business Day, payment is due on the next Business Day.

Y. Interest

Y1. This Clause Y only applies where:

(a) the value of this Contract is A$1 million (GST inclusive) or less; and

(b) the amount of the interest payable exceeds A$100.

Y2. For payments made by the non-corporate Commonwealth entity more than 20 days after the amount became due and payable, the non-corporate Commonwealth entity must pay the Interest accrued on the payment.

Y3. Interest payable under this clause Y will be simple interest on the unpaid amount at the General Interest Charge Rate, calculated in respect of each day from the day after the amount was due and payable, up to and including the day that the non-corporate Commonwealth entity effects payment as represented by the following formula:

SI = UA x GIC x D

Where:

SI = simple interest amount;

UA = the unpaid amount;

GIC = General Interest Charge Rate daily rate; and

D = the number of days from the day after payment was due up to and including the day that payment is made.

Y4. In this clause YGeneral Interest Charge Rate” means the general interest charge rate determined under section 8AAD of the Taxation Administration Act 1953 on the day payment is due, expressed as a decimal rate per day.

Z. Correct rendering of invoices

Z1. For the purposes of clauses X and Y, an invoice is correctly rendered if:

(a) it is correctly addressed and calculated in accordance with the Contract; and

(b) it relates only to supplies that have been delivered to the non-corporate Commonwealth entity in accordance with the Contract; and

(c) it is a valid tax invoice in accordance with A New Tax System (Goods and Services Tax) Act 1999 (Cth).

Part 4 – Definitions

Business Day means a day that is not a Saturday, Sunday, public holiday or bank holiday in the place where the act is to be performed.

Correctly Rendered Invoice means an invoice which is:

  • rendered in accordance with all of the requirements of the written contract (note that written contracts will often specify that the invoice must be a tax invoice and/or that certain information must be included in the invoice and/or the format of the invoice); and

  • for amounts that are correctly calculated and due for payment and payable under the terms of the written contract (note that many written contracts will specify that payment is not required until the NCE is satisfied with the goods or services).

General Interest Charge Rate means the interest charge determined under section 8AAD of the Taxation Administration Act 1953 on the day that payment is due. Details of the General Interest Charge rate are available from the Australian Taxation Office website.

Receipt by the NCE means the day that the correctly rendered invoice is received by the NCE.

The Day that Payment was Made is the day that the NCE’s system generates a payment request into the banking system for payment to the business.


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