Late Payment Interest

Late Payment Interest

The South Australian Government is committed to paying bills on time with legislation effective from 1 November 2018 requiring interest to be paid on any undisputed invoice, subject to meeting set criteria, if it is not paid within 30 calendar days of the date it is received by a public authority.

The criteria for determining whether interest is paid include:

  • the invoice has a value of $1 million (GST exclusive) or less
  • the amount of interest to be paid is $10 or more
  • the invoice was issued by a business incorporated under the Corporations Act 2001 (Cwth)
  • the invoice has been correctly rendered (e.g. GST compliant, appropriately addressed, etc.) and is not disputed

The legislation excludes certain invoices, including where the associated contract makes specific provisions, including:

  • payment terms that are greater than 30 days
  • the payment of interest if a payment is not made in accordance with the terms of the contract
  • where the contract is covered under the Building and Construction Industry Security of Payment Act 2009

The scope of the Act has also been expanded to cover all businesses trading with the South Australian Government and is not limited to small businesses.

Where applicable, interest will be calculated for each day an invoice remains overdue past 30 calendar days, applying the Reserve Bank Cash Rate (at the time) plus a five per cent penalty. The calculated amount of interest must be paid to businesses within 48 hours of when the overdue invoice is paid. There is no requirement for businesses to request interest payments – this process occurs automatically.

You can read the Act, amendment Bill and Regulations and more information here.

Frequently Asked Questions

Late Payment of Government Debts (Interest) Act 2013

This information is intended as a guide to assist businesses interpret the Late Payment of Government Debts (Interest) Act 2013, as amended effective 1 November 2018 to include the automatic payment of interest on overdue invoices.

The materials on this website regarding the Late Payment of Government Debts (Interest) Act 2013 and associated Regulations are for information purposes only. Before relying on this information, you should independently confirm its accuracy, currency and completeness.

What is covered by the Late Payment of Government Debts (Interest) Act 2013?

The Act was amended effective 1 November 2018 (via the Late Payment of Government Debts (Interest) (Automatic Payment of Interest) Bill 2018) to require that interest is applied to any undisputed invoice meeting certain criteria, not paid within 30 calendar days of the date it is received by a public authority.

The Act requires that the payment of interest on overdue invoices (i.e. an invoice not paid within 30 days or less of the SA Water Received Date) occurs within 48 hours of when the original invoice is paid, where the following criteria are all met:

  • The invoice is valued at $1 million (GST exclusive) or less
  • The amount of interest to be paid is $10 or more
  • The invoice was issued by a business which is incorporated under the Corporations Act 2001 (Cwth) or by an individual whose principal place of residence is situated in Australia
  • The invoice relates to the provision of goods and or services to a Public Authority
  • The invoice is correctly rendered (e.g. GST compliant, appropriately addressed, etc.) and not disputed.

The scope of the Act has also been expanded to cover all businesses trading with the South Australian Government, rather than the previous limitation to small business.

Businesses do not need to submit a separate invoice or any other supporting documentation to receive late payment interest – this process will occur automatically.

Not all vendors or invoices are eligible for interest payments.

What is the start date of the Act?

The Act applies to invoices with an SA Water Received Date on or after 1 November 2018. In practice this means that no interest will be calculated and paid until at least 30 calendar days after that (i.e. on 1st December 2018 or later).

Which Government Agencies are covered by the Act?

The Act applies to public authorities (i.e. Government Agencies, public corporations, various statutory bodies) listed in a Gazette published by the Treasurer.

What is not covered by the Late Payment of Government Debts (Interest) Act 2013?

Examples of businesses which are not entitled to receive late payment interest include:

  • Other State Government Public Authorities
  • Public schools
  • Public universities
  • Local Government, Commonwealth Government, or public entities in other State Government jurisdiction
  • Public Sector Employees
  • Carers (who are not businesses in accordance with the definition under the Act)
  • Members of the public (unless they are directly providing goods or services to a public authority)

Examples of types of invoices which will not have late payment interest applied include:

  • Invoices in a foreign currency
  • Invoices that do not relate to the supply of goods or services; and
  • Where the invoice/payment is a refund.

The Act also excludes invoices submitted under the following types of contracts from the application of late payment interest:

  • Where it makes specific provision for payment terms that are greater than 30 days
  • Where it makes specific provision for the payment of interest if a payment is not made in accordance with the terms of the contract
  • Where covered under the Building and Construction Industry Security of Payment Act 2009.

How long will it take to receive late payment interest?

If penalty interest is payable, it will be paid by the public authority within 48 hours of the overdue invoice being paid. For a majority of public authorities, the interest will be paid at the same time as the overdue invoice is paid.

Will GST be included when calculating late payment interest?

GST will not be included when calculating penalty interest. In other words, interest will be calculated on the value of the invoice less the GST amount.

GST will not 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 is a correctly rendered invoice?

An invoice needs to be correctly rendered to ensure that it can be processed in a timely manner.

An invoice will be considered to be correctly rendered if:

  • It is GST compliant
  • The invoice reflects the correct price for the goods / services delivered
  • The invoice reflects the correct quantity of the goods / services delivered
  • The invoice contains the relevant Purchase Order or Contract Reference number (if applicable)
  • The invoice is correctly addressed.

SA Water may dispute an invoice if it not correctly rendered. In such cases, the business would not be entitled to late payment interest if the associated invoice is paid late.

How should invoices be correctly addressed?

Invoices should quote “SA Water” as part of the "bill to" address block (mandatory), the actual division/business unit the supply relates to and the name of the contact person.

Format Example;

Trading Entity

Site Name and Business Unit

GPO Box

Adelaide SA 5001

Purchase Order Number/Contract Reference

SA Water

Customer Delivery

Attention: Jane Smith

GPO Box 1751

Adelaide SA 5001

PO #658934

How will I know if penalty interest has been paid?

The remittance advice will show the interest paid as a separate line item.

What is SA Water’s Received Date?

The Received Date is the date the correctly rendered invoice was physically received by SA Water.

This Received Date and not the Invoice Date will be used to calculate any late payment interest due.

What is the Payment Date?

The payment date is:

  • For an EFT, the date that SA Water sends the payment file to the bank
  • For a cheque, the date the cheque was posted

How is Late Payment Interest calculated?

The late payment interest amount must be calculated with the following formula:

I = ND x (IA x PIR) / 365

Where:

  • I is the interest payable to the business
  • ND is equal to the number of days that the invoice is paid late (i.e. interest starts to apply from the 31st day after the SA Water Invoice Received Date)
  • IA is the value of the invoice (GST exclusive)
  • PIR is the prescribed interest rate applying on the first day of the month in which the designated payment period ends.  The prescribed interest rate is the Reserve Bank Cash Rate for the applicable month plus 5%.

Example for payments received by electronic funds transfer

Invoice amount: $220,000 (GST inclusive)

SA Water Received Date: 6 June 2018

Invoice due date: 6 July 2018 (30 calendar days after the SA Water Received Date)

Payment Date: 25 July 2018

Calculation Period: 19 calendar days

RBA Cash Rate: 1.5% (as at 1 July 2018)

I = 19 x ($200,000 X (1.5% + 5%)) / 365

Interest payable = $676.71 (rounded to the nearest whole cent)

How and when can an invoice be disputed?

An invoice may be disputed when it is not correctly rendered. Refer to the question: What is the definition of a correctly rendered invoice?

When the dispute has been resolved and the invoice is ready to be paid, it is likely that either the invoice date or the invoice received at SA Water date will need to be modified to reflect the resolution of the dispute and to ensure the correct interest (if any) is calculated and paid.

Incorrectly Rendered (e.g. Incorrectly Addressed or missing a Purchase Order Number) invoices

A vendor is required to render an invoice correctly for payment.

If the invoice is not rendered correctly then it can be considered to be in dispute.

While the invoice is in dispute, payment cannot be made.

No late payment liability will be incurred during the time SA Water is awaiting additional information from the vendor.

What happens if there is a dispute as to whether interest should or should not be paid against a particular invoice?

A business may lodge a dispute with SA Water’s Accounts Payable Team at accountspayable@sawater.com.au regarding a number of matters such as the amount of interest paid, the length of time an invoice was with SA Water before payment (i.e. the Agency Received Date) or why a particular invoice was disputed.

In the event that there is a disagreement between a business and SA Water over the matter of late payment interest, the business should seek to resolve the matter with SA Water in the first instance.

Should a business not be satisfied with the response provided, it may escalate the dispute to the Chief Executive of SA Water. Should the business still not be satisfied, the matter can be referred to the Small Business Commissioner. Under the Act, the Small Business Commissioner has the authority to make determinations as to whether interest should be paid to a business, based on the particular circumstances of each case.

Section 7 of the Act allows for the Small Business Commissioner to specify procedures and requirements to resolve disputes which may arise between a public authority and a business.