Pay On-Time Policy (RMG 417) - Additional information

Part 1 – Policy for payments under contracts up to $1 million

Can entities adopt shorter payment terms?

Entities can choose to adopt shorter timeframes. Where shorter payment terms are agreed between an NCE and supplier, entities should be mindful that the shorter payment term is relevant when calculating penalty interest.

Do existing contracts need to be renegotiated or amended to include new payment terms?

The policy is not retrospective and there is no need to renegotiate or amend contracts entered into prior to 1 January 2020 to reflect the change. However, consistent with the previous payment policy, entities may choose to pay a correctly rendered invoice earlier and we would encourage this in the context of consistency with the maximum payment terms of 5 days for e-Invoicing and 20 day for traditional invoicing

Does the policy apply to procurements currently out to market?

No, not if the approach to market was issued prior to 1 January 2020. However, we would encourage adoption of the 5 day payment terms in the context of consistency with the maximum payment terms in the Pay On-Time policy.

What is meant by “written contracts”?

A written contract under the policy is an arrangement, as defined by section 23(2) of the PGPA Act, for the procurement of goods and/or services under which relevant money is payable or may become payable. This includes standing offers, panels and purchase orders. 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.

Is interest payable on invoices for goods or services that have not been delivered or do not meet the requirements of the written contract?

Interest is not payable when, in accordance with the written contract:

  • goods and/or services have not been delivered satisfactorily; and/or
  • a correctly rendered invoice has not been submitted.

Does the policy apply to overseas procurements or contracts?

No, the policy does not apply when procuring and consuming goods and services overseas.

Does the policy apply to contracts using foreign currency?

The policy does not contain specific instruction in relation to payments made in foreign currency. Entities should consider the limitations at paragraph 7 of the RMG when determining if the policy should be applied. When determining the value of a contract for the purpose of applying the policy, if the total value of the contract would be at A$1 million or less when converted to AUD, the policy would generally apply.

How is penalty interest calculated?

Finance has developed an online calculator to assist entities determine penalty interest.  The general interest charge rate, available from the Australian Taxation Office, is the rate on the day that payment is due. Entities are to use this single rate when calculating penalty interest and are not required to recalculate the general interest charge rate if it changes during the penalty interest period.

When calculating penalty interest, entities should be mindful that if the agreed maximum payment terms outlined in the contract are less than the policy requires, then the shorter payment term is relevant when calculating penalty interest. If the maximum payment terms fall on a non-business day, payment is not due until the next business day.

What do I need to consider when paying penalty interest?

Government policy is for entities to pay invoices on time. As such, entities should not anticipate facing late payment charges when arranging approval for a procurement contract. Entities are required to comply with relevant legislation and internal policies and processes when approving and making penalty interest payments. This includes obtaining relevant approvals for the payment of penalty interest.

Is there a timeframe within which interest is to be paid?

The policy does not specify a timeframe within which interest payments are to be made. Entities should pay interest promptly, preferably at the same time as the late payment.

Can administered funding be used to pay late interest payments?

Administered appropriation may only be used for the program or outcome that it is appropriated for and may not be used to pay late interest payments to suppliers.

Is interest payable on the whole amount or just the outstanding amount?

Penalty interest is only calculated on amounts not yet paid by the entity. If an entity has paid a proportion of the amount to the supplier, interest is not accrued on the amount already paid. 

Are interest payments reportable on AusTender?

Penalty interest payments are not procurements and are not to be reported on AusTender. 

Does the policy still apply if the contract is varied to an amount equal to or above A$1 million (GST inclusive)? 

Yes, the policy still applies if the value of the initial term of the contract was determined to be under $1 million (GST inclusive). The value of the initial term of the contract should not include any options, extensions, renewals or other mechanisms that may be executed over the life of the contract.

Does the policy apply to work orders under panels?

Yes, the policy applies to work/official orders with an initial value up to $1 million (not including mechanisms that may be executed over the life of a contract) that are entered into under standing offer arrangements, including panels.

Should GST be included when calculating penalty interest?

GST tax law does not stipulate an approach to payment of interest being calculated based on the inclusive or exclusive GST amount. Finance suggests that as a general rule, entities calculate the interest amount payable based on the total invoiced amount.

Should GST be applied to the penalty interest?

GST is not to be applied to penalty interest payments.  Penalty interest payments are an input taxed supply under section 40-5 of A New Tax System (Goods and Services Tax) Act 1999.  Therefore, it is not subject to GST and there is no entitlement to an input tax credit for the things that are acquired to make the financial supply.

Does RMG 417 apply where the supplier is a Commonwealth entity or state body?

No, RMG 417 does not apply where the supplier is a Commonwealth entity or state body. The policy is intended to encourage payments to all ‘businesses’, regardless of size, in a timely manner. Entities should pay Commonwealth entities and state bodies in accordance with agreed payment terms and in a timely manner.

Are there reporting requirements under this policy?

Yes, the Department of Employment, Skills, Small and Family Business conduct the Pay on-time survey performance report, an annual survey with the results published on the Department’s website. The survey is mandatory for non-corporate Commonwealth entities.

Are there model clauses available to support this policy?

The policy contains an example draft contractual clause at Part 1.3. There is also a model clause available on Clause Bank. The Commonwealth Contracting Suite Commonwealth Contract Terms, Commonwealth Purchase Order Terms and Commonwealth Deed of Standing Offer Terms will be updated to include five day payment terms for e‑Invoicing, and will be available from 1 January 2020.

What is Pan-European Public Procurement On-Line (PEPPOL)?

  • PEPPOL provides a governance framework and technical specifications that makes it possible for different systems and services to exchange data directly, creating a vendor agnostic network.
  • PEPPOL provides a standard, open and affordable network with minimal transaction costs.

What is an e-Invoice?

  • An e-Invoice is an invoice that has been issued, transmitted and received in a structured electronic format, which allows for the automatic direct exchange of invoices between the software systems of the buyer and supplier, without manual handling or data entry.
  • Generally, emailed PDF invoices are not considered “e-Invoices” as they require the buyer to manually enter the invoice details into their system.
  • e-Invoicing removes the need to create paper-based or PDF invoices, to scan, post or email them, or to manually enter them.
  • There are many benefits of e-Invoicing; for example, it's more efficient and helps to reduce the instances of invoices being lost or delayed, or of errors being introduced when invoice details are manually entered into the buyer’s system.
  • The Australian Government has adopted an internationally established e-Invoicing framework, PEPPOL, which provides a common digital language that allows different systems to ‘speak’ to each other. This means that a supplier with a PEPPOL compliant system can send an e-Invoice directly to a buyer’s PEPPOL compliant system, even where they are both using different accounting software.

Who can use e-Invoicing?

  • For the policy to apply, any supplier or NCE using financial or accounting software which is PEPPOL enabled can use PEPPOL e-Invoicing, if they have agreed to use this method of invoicing.

What is the Australian Taxation Office’s role?

  • The Australian Taxation Office (ATO) is the authority that implements and governs the network of service providers. It accredits the service providers and creates the appropriate specifications (i.e. setting the standards) for e-Invoicing and driving its adoption.
  • For more information on the PEPPOL framework and e-Invoicing see the ATO website.

Part 2 – Policy for payments for goods and services below $10,000

What is an eligible payment?

An eligible payment is a payment with a value less than $10,000 (inclusive of GST and merchant service fees) due to a supplier that is not associated with a multiple-payment contract, or standing offer arrangement.

Can my entity choose a higher threshold or is the policy limited to purchases under $10,000?

The policy applies to purchases valued less than $10,000. However, an entity may wish to extend the use of payment cards above $10,000 depending on the business needs of the entity.

What should I do if the supplier refuses to be paid by card?

The policy only requires suppliers to be provided an opportunity to request payment via a payment card for amounts below $10,000. The policy does not require a supplier to accept payment via a payment card.

If a supplier does not accept payment via a payment card, other payment methods are available to them in accordance with the policy.

What is a reasonable merchant fee?

Merchant service fees may be passed on by a supplier. Merchant service fees are required to be limited to ‘reasonable cost’ for accepting the payment which may vary on the card used.  Further guidance on merchant service fees is available from the Reserve Bank of Australia in Guidance Note: Interpretation of the Surcharging Standards (www.rba.gov.au).

Does each payment card need to have the same limit?

The policy does not specify limits for payment cards.

Does this policy apply to entitlement payments to Senators and Members and their staff?

The payment card policy applies to procurements subject to the Commonwealth Procurement Rules (CPRs). The payment card policy should apply when employees of non-corporate Commonwealth entities are procuring on behalf of Senators, Members and their staff where practicable. 


Did you find this content useful?