Supplier Pay On-Time or Pay Interest Policy – Resource Management Guide No. 417 (Policy) - Additional information

Part 1 – Policy and Practice

Does the revised Policy apply to procurements out to market prior to 1 July 2022 that have an estimated value of greater than $1 million?

Approach to market documentation for non-corporate Commonwealth entities (NCEs) procurements with an estimated value of greater than $1 million should include payment terms that reflect the revised Policy where the contract is anticipated to be entered into from 1 July 2022. Corporate Commonwealth entities are also encouraged to take this approach.

If the value of the contract was originally greater than $1 million, does the contract need to be renegotiated or amended to now include the payment terms in the Policy?

There is no requirement to renegotiate or amend contracts that were valued greater than $1 million and entered into prior to 1 July 2022. The payment terms of that contract will remain in place. However, NCEs are encouraged to apply the shorter payment terms to existing contracts where shorter payment terms are agreed between a NCE and supplier.

Will I be non-compliant if I enter into a contract that does not reflect the revised policy between now and 1 July 2022?

While the policy comes into effect on 1 July 2022, entities are encouraged to consider implementing the changes in the revised Policy prior to 1 July 2022. The advanced notification of the updates is to allow NCEs to make the necessary arrangements within their entities in regards to systems, businesses processes, internal policies, communications etc. Any contracts entered into after 1 July 2022 that do not reflect the Policy will be non-compliant with the Policy.

Can entities choose to adopt shorter payment terms?

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

What is meant by “written contracts”?

A written contract under the Policy is an arrangement, as defined by section 23(2) of the Public Governance, Performance and Accountability Act 2013, 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. The Policy 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 and accepted by the NCE.

When do I start calculating the date an invoice is due for payment if the invoice requires clarification or correction? For example there are details that the NCE need to confirm with the supplier before they are comfortable receipting the invoice.

The date an invoice is due for payment is only calculated from the start of the next calendar day following the NCEs receipt of a correctly rendered invoice AND acknowledgement of the satisfactory delivery of the goods or services in accordance with the terms of the contract. If the NCE requires clarification or correction of an invoice, the NCE should not receipt the invoice until they are satisfied with the clarification or correction.

Does the Policy apply to procurement and consumption of goods and services overseas?

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. NCEs should consider the limitations at paragraph 7 of the Policy when determining if the Policy should be applied.

Does the Policy apply to work orders under panels?

Yes, the Policy applies to work/official orders that are entered into under standing offer arrangements, including panels.

Does the Policy have to be applied to complex and/or commercial contracts?

The Policy indicates that the payment terms do not apply in those circumstances where the nature of the goods or services being procured, or the structure of the procurement, would make it impractical for the Policy to be applied, such as where the procurement occurs under standard terms and conditions put forward by the supplier rather than the NCE.

Will shorter payment times compromise an NCEs ability to conduct due diligence activities before an invoice has to be paid?

The Policy requires an NCE to pay an invoice only upon receipt of a correctly rendered invoice AND acknowledgement of the satisfactory delivery of the goods or services in accordance with the terms of the contract. Only once the NCE has acknowledged the satisfactory delivery of the goods or services and a correctly rendered invoice has been receipted, do the maximum payment terms apply from the start of the next calendar day. If the maximum payment terms fall on a non-business day, payment is not due until the next business day.

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

No, the Policy 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. NCEs should pay Commonwealth entities and state bodies in accordance with agreed payment terms and in a timely manner.

How is penalty interest calculated?

An online calculator is available to assist NCEs determine penalty interest.  The applicable general interest charge rate, available from the Australian Taxation Office , is the rate on the day that payment was due. NCEs 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, NCEs 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.

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.

What do I need to consider when paying penalty interest?

Government Policy is for NCEs to pay invoices on time. As such, NCEs should not anticipate facing late payment charges when arranging approval for a procurement contract. NCEs 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. NCEs 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 NCE. If an NCE has paid a proportion of the amount to the supplier, interest is not accrued on the amount already paid.

Are credits raised for duplicate payments covered by the Policy?

No, credits raised for duplicate payments are not covered by the Policy. These credits are not a payment made under a contract following the satisfactory delivery of goods and services AND receipt of a correctly rendered invoice. Rather, they are an amount owed due to an administrative error or correction. NCEs should consider if the original payment (not the duplication), is covered under the Policy.

Are interest payments reportable on AusTender?

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

Are there model clauses available to support this Policy?

The Policy includes an example draft contractual clause at Part 1.3. The model clause is also available on ClauseBank and reflected in the Commonwealth Contracting Suite.

What is Peppol?

Peppol, previously referred to as Pan-European Public Procurement On-Line (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 eInvoice?

An eInvoice 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 “eInvoices” as they require the buyer to manually enter the invoice details into their system.

eInvoicing 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 eInvoicing; 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 eInvoicing 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 eInvoice directly to a buyer’s Peppol compliant system, even where they are both using different accounting software.

Who can use eInvoicing?

For the 5 day payment terms to apply, any supplier or NCE using financial or accounting software which is Peppol enabled can use Peppol eInvoicing, 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 eInvoicing and driving its adoption.

For more information on the Peppol framework and eInvoicing see the ATO website.

Part 2 – Payment Card Policy for contracts valued 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 an NCE 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 NCE may wish to extend the use of payment cards above $10,000 depending on the business needs of the NCE.

What should I do if the supplier does not want 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 (

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. The payment card Policy should apply when employees of NCEs are procuring on behalf of Senators, Members and their staff where practicable. 

Did you find this content useful?