Should companies be forced to disclose payment practices?

A curious bill has been added to the Members’ Bill ballot by first term Labour MP Deborah Russell (she inherited the New Lynn electorate off David Cunliffe) that proposes a requirement by ‘large companies’ to disclose their payment terms, as well as their payment performance in practice.

Companies (Disclosure of Payment Practice and Performance) Amendment Bill

This bill introduces a requirement for large companies to publicly disclose their payment practices and performance, including standard contractual length of time for payment of invoices, average time taken to pay invoices, percentage of invoices paid within agreed terms, and other related information including the availability of e-invoicing and supply chain finance.

Is this any business of the Government, or of anyone but those who make business contracts and agree to payment terms between each other?

This will add more administrative overhead to the operation of companies.

Explanatory note

General policy statement

The purpose of this Bill is to introduce a requirement for large companies to publicly disclose their payment practices and performance. This information will include standard contractual length of time for payment of invoices, average time taken to pay invoices, percentage of invoices paid within agreed terms, and other related information including the availability of e-invoicing and supply chain finance.

For small businesses in New Zealand, getting paid is hard to do. Cash flow issues, even in good times, are a significant burden and hinder the sustainability and growth of New Zealand’s small businesses. This is exacerbated by the fact that large companies can hold an unfair advantage when negotiating payment terms and conditions with small businesses, especially in a monopsonistic or oligopsonistic market. Small businesses can be forced to accept unreasonable payment terms and conditions, including payment times of 60, 90, or even 120 days.

There is no technical reason why large companies cannot pay their bills promptly. The practice of forcing payment terms of 60 days or more is not a technical one, but instead a mechanism to use small company creditors as a line of credit. This practice may have a negative effect on the economy.

The requirement for large companies to disclose their payment practices and performance, as introduced by this Bill, will benefit small businesses in two key ways.

Firstly, it will allow the public and the media to scrutinise large companies and assess whether they are practising corporate social responsibility.

Secondly, it will allow potential creditors to be better informed when deciding who they choose to supply.

The change will also enable better stock market analysis of large companies by providing information about companies’ cash flow management.

Should it be up to the media to “scrutinise large companies and assess whether they are practising corporate social responsibility”?

Perhaps there could be a public twitter group set up to judge whether corporates are practicing “social responsibility”.

I don’t know how much business experience Russell has.

Slow payment can be a bugger when in business – but large companies tend to be more reliable. Small businesses are more likely to be tardy in paying, no matter what the terms of payment are.

What is a ‘large company’?

214AB Application
(1) This Subpart applies to—
(a) every large company; and
(b) every large overseas company.
(2) In this section, large company and large overseas company have the same meanings as in section 198.

This leads to:

large companymeans a company that is large under section 45 of the Financial Reporting Act 2013
large overseas company means a body corporate incorporated outside New Zealand that—

(a) carries on business in New Zealand within the meaning of section 332; and
(b) is large under section 45 of the Financial Reporting Act 2013

Which leads to:

45 Meaning of large

(1) For the purposes of an enactment that refers to this section, an entity (other than an overseas company or a subsidiary of an overseas company) is large in respect of an accounting period if at least 1 of the following paragraphs applies:

(a) as at the balance date of each of the 2 preceding accounting periods, the total assets of the entity and its subsidiaries (if any) exceed $60 million
(b) in each of the 2 preceding accounting periods, the total revenue of the entity and its subsidiaries (if any) exceeds $30 million.

(2) For the purposes of an enactment that refers to this section, an overseas company or a subsidiary of an overseas company is large in respect of an accounting period if at least 1 of the following paragraphs applies:

(a) as at the balance date of each of the 2 preceding accounting periods, the total assets of the entity and its subsidiaries (if any) exceed $20 million:
(b) in each of the 2 preceding accounting periods, the total revenue of the entity and its subsidiaries (if any) exceeds $10 million.

Is the targeting of large companies fair?

Is there a problem that needs fixing?

What’s going to happen if a large company is discovered by media or the public to be being tardy in their payments?

If drawn from the ballot it’s possible this bill would get sufficient support to pass. Greens tend to be anti-large businesses, as are NZ First except for those that donate to them.

Would Labour support this? They won’t be put in this awkward position if the bill isn’t drawn.

This proposed law seems to be designed to do enable public shaming of companies deemed by whoever to be tardy with their payments.

If this bill makes it into Parliament it may be subject to a bit of public shaming without any laws being passed.

Surely Deborah Russell could have come up with something better than this.