Rescinded [2009-10-01] - Changes to the Payment on Due Date Policy - TB Circular 1996-1

Circular No: 1996-1

Date: February 6, 1996

To: Senior Financial Officers, Senior Full Time Financial Officers

Subject: Changes to the Payment on Due Date Policy

Introduction

On December 14, the Treasury Board approved several changes to the Payment on Due Date (PODD) policy that had been under development for some time. The changes, which were previously proposed as part of the June 1994 consultation with departments on charging interest on overdue accounts, are discussed in greater detail below, together with our plans for consultations on implementation.

Increase in the Interest Rate

First, the Board approved a change in the rate of interest that the government pays on overdue accounts. The current rate is the Bank of Canada rate plus 1.25 per cent, and it changes weekly. For contracts that begin or are revised or renewed after April 1, 1996 the new rate will be the average Bank of Canada discount rate for the previous month, plus 3 per cent. The rates are published weekly in the Bank of Canada "Weekly Financial Statistics".

The two reasons for increasing the rate are equity (the new Interest and Administrative Charges Regulations on overdue non-tax receivables will require debtors to pay interest at the Bank of Canada rate plus 3 per cent), and the requirement to cover realistically the cost of borrowing by small and medium sized businesses.

This change to the policy will also affect all tenders, RFPs, contracts, standing officers and local POs with a start date of April 1^st or later. Revised terms of payments will, of course, be required. We will provide more guidance on the implications of this change to the PODD policy for multi -year contracts that continue beyond April 1, 1996 as that date approaches

Elimination of the 15-day interest free period and allowance for mailing time

The second change is the elimination of the 15-day interest free period. Currently, TB policy requires payment 30 days after receipt of the goods and services, or the supplier's invoice, whichever is later. If accounts are overdue by more than 15 days, interest is calculated from day 30 and paid automatically by the PODD system. However, if overdue accounts are paid less than 15 days after the due date, no interest is payable.

As a third change, where payment is mailed, an allowance for mailing time, based on Canada Post's official service standards, is to be added tot he number of days for which interest is paid. This reflects the usual industry practice of charging interest from the due date to the date that payment is received. We will provide more details on the calculation and payment of interest before April 1, 1996.

While by policy and contractually, the 15-day interest-free grace period may have been eliminated, changes required to the existing systems in departments and at PWGSC to implement it on an automated basis are not being made at this time. Automation will be part of the government's new Financial Information Strategy (FIS), which will result in changing the location of calculation of interest from PWGSC to departments. FIS will require the departments to automatically calculate interest I their internal systems.

In effect, therefore, the automated elimination of the 15-day interest-free grace period will parallel the implementation of FIS, which will occur in three phases beginning in fiscal year 1999-2000. However, as an interim measure, suppliers will be given the option to bill for interest on accounts paid within the current 15-day interest-free grace period.

Payment Performance Made Public

A further requirement results from acceptance by the government of a resolution of the Joint Public and Private Sector Forum on Paper Burden reduction. Early in 1995, the President of the Treasury Board sponsored the Joint Forum, a high profile group of senior federal government officials and representatives of small business and business associations. Its mandate is to identify issues and opportunities for reducing existing information burden, and recommend changes to acts, regulations and policies required to relieve burden or prevent additional burden. The Forum has made a number of resolutions that complement the government's changes to the PODD policy, especially with respect to late payment a long-standing business irritant. One of these involves public dissemination of PODD data showing delinquent departments and the amount of interest that is both owing and paid. Implementation will take place as soon as the most appropriate method of dissemination has been determined.

Consultations on Implementation

As part of the implementation of the changes, the Financial and Contract Management Sector of TBS will establish an interdepartmental group and a consultation process to focus on the following three issues:

1. the most cost-effective means to implement the changes to the PODD policy;
2. the development of incentives to improve compliance with the PODD policy; and
3. the most cost-effective means to disseminate PODD monitoring data to the public.

We plan to hold the first meeting of the consultation group on February 28^th at 9:00 a.m., in Boardroom 8C, West Tower, L'Esplanade Laurier. If you would like your department to participate, your staff should contact either Gilles Vézina (857-9660) or Fern Callan-Gamarnik (957-9655) for further information.

Review of Interest Payments

In addition, as a separate exercise, my staff have analysed government payment patterns to suppliers. Actual interest payments were compared with estimates of interest owed. The estimates were developed from the payment patterns of all departments and agencies covered by the PODD policy. We noticed that some departments pay far less in interest than would be expected given their actual payment patterns. We plant to take this opportunity to examine interest payments in greater depth.

My staff will contact a selected sample of departments within the next few weeks. If your department is included in the sample, I would appreciate it very much if you would outline the procedure used to calculate and pay interest on overdue accounts. We would like to know if differences between actual and expected interest payments are due to payment processes that are particular to departments or, perhaps, to faulty compliance with the PODD policy.

Thank you for your continued support in assisting us with these initiatives.