Invoice issue day
The invoice issue day, otherwise referred to as the receipt date, is when an invoice is received by the reporting entity.
An invoice is ‘received’ and the payment clock ‘commences’ when it is received by the entity in accordance with the invoicing requirements of the relevant contract (either written or oral).
This could include contractual arrangements in order for payments to be made. For example, having to provide the invoice to a particular email address or requiring that the invoice includes a purchase order number and ABN.
The contractual arrangements may also deal with matters such as the treatment of backdated or incorrect invoices.
The date of receipt of an invoice is not:
- when the invoice is entered into the entity’s accounting or information systems
- when the invoice is authorised
Unless these processes happen on the same day as the invoice is received.
If the receipt date is unknown or cannot be established (i.e. the entity receives paper invoices), then the date of the invoice can be used as the date of receipt.
Incorrectly received invoice example
An employee of Entity X receives an invoice from Small Business Y. Entity X and Small Business Y have a contractual arrangement. The arrangement states invoices will only be accepted if they are submitted to Entity X’s shared inbox.
Until that invoice is received in Entity X’s shared inbox, the invoice is not deemed to have been received. The payment clock for this invoice has yet to commence.
Invoice received date is not known example
Entity X receives invoices in various ways. This includes electronically and by post. Invoices which are received through electronic means have information available on when the invoice was received by Entity X.
Invoices that are received in the post by Entity X are not date stamped. It may be processed into Entity X’s accounting system a few days after the invoice was received in the mail.
In this case, Entity X can use the date which is marked on the invoice. This is because it is unable to provide the date the invoice was received.
In calculating payment times for a small business invoice that is not using supply chain finance arrangements, the invoice is paid as follows:
- direct debit: when the amount has been debited from the bank account
- credit or procurement card: when the amount has been debited from the credit/procurement card account
- cheque: when the cheque has been provided to the supplier
- cash transactions: when the money has been provided to the supplier
Where the invoice is paid before it is received, the payment is a zero-payment time. It is included in a report under the bracket of payments made within 20 days.
Where supply chain finance arrangements are used, the invoice is considered paid at the end of the relevant supply payment period.
This is intended to ensure that a large business calculates payment times where supply chain finance arrangements are used on the basis of the standard payment period. That is, the payment time that would ordinarily have occurred had supply chain financing not been used.
- if the standard payment term is 30 days and after being offered a dynamic discount of 2% the supplier elects to receive payment in 10 days, the reporting entity must use 30 days when calculating its payment times for reporting purposes
- if the standard payment term is 30 days but the supplier and reporting entity have negotiated a settlement discount where the supplier will accept a 2% discount for the invoice to be paid within 5 days, the reporting entity must use 30 days when calculating its payment times for reporting purposes
This will ensure that payment times are reported transparently. It will not be obscured by supply chain finance arrangements.
Calculating payment times for bilateral supply chain finance arrangements example
Entity X is a reporting entity. It enters a contractual arrangement with Small Business Supplier A. The contract specifies that Small Business Supplier A will be paid 60 days after receipt of a correctly rendered invoice.
The contract also states that Entity X can have a 3% discount on the invoice value if the invoice is paid within 20 days. Entity X records the date of invoice receipt. The payment time commences from this day.
Entity X also chooses to accept the 3% discount offered in the contract. They pay the invoice on day 20.
This arrangement meets the definition of a supply chain finance arrangement under the Scheme. As such Entity X should record the payment time as 60 days. This is the end of the relevant supply payment period.
Disputed invoices must be included in the calculation of a payment time if the dispute occurs after the invoice has been accepted by the reporting entity as meeting the contractual requirements.
Similarly, the time taken to resolve an incorrect invoice should be included in a payment times calculation where the invoice has already been accepted as meeting the contractual requirements.
Reporting entities may outline the requirements for accepting invoices in their contract with a small business. This may include how they intend to deal with incorrect or disputed invoices. For example, if a supplier contract specifies that an invoice cannot be accepted by the reporting entity if it is incorrect, the payment times clock will not commence until a correct invoice is received.
Where the invoice does meet the contractual requirements, the payment times clock will continue. This is whether or not a dispute occurs or the invoice is incorrect.
Disputed invoices that are paid in a reporting period must be reported in the relevant payment bracket to reflect when they were paid. For example, within 20 days, 21-30 days, 31-60 days, 61-90 days, 91-120 days or 120 days plus.
Disputed invoices are considered to be resolved when the earlier of:
- both parties reach an agreement over the dispute and payment is made
- when the small business supplier has not raised a dispute and the contractual dispute period has ended
Invoices which are partially paid without the agreement of the supplier should be reported in the same way as disputed invoices. For example, from when the invoice was received until when it was paid in full in accordance with the agreement.
Reporting entities can give context or explanation in relation to their disputed invoices. This is done in a free text field in the Payment times report.
It is recommended that any information included in this field is broad and general in nature. The Regulator can refuse to publish certain information having regard to whether it:
- is personal information
- is commercial-in-confidence
- is irrelevant to the objectives of the scheme
Payment of an invoice is disputed during a contractual dispute period example
Entity X receives an invoice for 100 units of Product A. However, in reconciling the goods Entity X found 10 units of Product A were defective. Entity X accepts the goods. They make a payment for 90 units of Product A (instead of 100 units), 30 days after it received the invoice.
Under its contract, the small business supplier can raise a dispute within 30 days of receiving payment. The small business supplier disputes the payment within this timeframe. The matter is resolved 55 days after the invoices was received.
Entity X must report this payment within the 31-60 day band.
Payment of an invoice is not disputed within a contractual dispute period example
Entity X receives an invoice for 100 units of Product A. However, in reconciling the goods Entity X found 10 units of Product A were defective. Entity X accepts the goods and makes payment for 90 units of Product A (instead of 100 units), 30 days after it received the invoice.
Under its contract, the small business supplier can raise a dispute within 30 days of receiving payment. The small business supplier does not dispute the payment within this timeframe. The matter is considered to be resolved.
Entity X must report this payment within the 21-30 day band.
Partially paid invoice
Invoices can be partially paid by mutual agreement, for example, in monthly instalments. The payments can be reported as having been paid in full providing the instalments are made on time. In this instance, the ‘receipt of invoice’ date for the next instalment would be the day after the latest instalment was due.
Invoices which are partially paid without the agreement of the supplier cannot be recorded as having been paid, until the invoice is paid in full.
Payments made in monthly instalments example
Entity X receives an invoice on 1 June 2021. Payments can be made in two monthly instalments on the 30th of each month. Entity X makes a payment on 30 June 2021 and then on 30 July 2021.
For the purposes of reporting, the payment clock commences and ends as follows:
- invoice received: 1 June 2021
- invoice instalment due: 30 June 2021
- invoice paid: 30 June 2021
- reported as: Payment made within the 21-30 day band
- invoice received: 1 July 2021 (while no second invoice was received, the receipt of invoice is the day after the latest instalment was due)
- invoice instalment due: 30 July 2021
- invoice paid: 30 July 2021
- reported as: payment made within the 21-30 day band
Recipient Created Tax Invoices
Recipient Created Tax Invoices (RCTIs) are one of the methods of receiving supplier invoices. This is common practice in the construction industry. They should be reported the same way as standard invoices.
RCTIs are generated by the entity (recipient) in accordance with its contractual arrangements with the suppliers. For example, it specifies the date of invoice issued, credit terms, payment dates, etc.
Where rebates are provided by the supplier the invoiced amount should be used in determining calculations relating to payment times and practices.
For example, a supplier receives $10 per item for every item up to a total of 10,000 items. They then receive $8 per item. All information provided by reporting entities should be based on the actual item price invoiced.
Invoices that do not require any payment because they are covered by a credit note, do not need to be included in a payment times report.
Where an invoice is partially covered by a credit note, the entity should report on the invoice amount they are required to pay. For example, if the invoice is for $100 and a credit note of $20 is applied to the invoice, the entity should report the invoice value as $80.
Invoices included in payment times reporting
Small business invoices that are paid under a trade credit arrangement only need to be reported on.
An invoice covering a number of payments to be made under different contracts, should be counted separately. If one of the contracts was not in scope of reporting the payment will not need to be included in a Payment times report.
Exclusions from a payment times report
The following items are excluded from the payment times reporting:
- payments to other members of the controlling corporation’s group
- payments which do not have trade credit arrangements. For example, payments for rental leases that are pre-paid and travel expenses (including airfares, hotels, taxi, etc.) and restaurant or cafe expenses
- payments related to employees, whether through payroll or through reimbursements
- invoices that do not require any payment because they are covered by a credit note