Small business owner sitting on cube chairs spelling I Am Waiting

The Payment Times Inquiry Report is finally released.

For a very long time now, I have been expressing my dismay at large companies that delay payments to their smaller suppliers. (Anyone who follows my writing will recognise the theme). I applauded when Kate Carnell was appointed as Australia’s first Small Business and Family Ombudsman. I tried as hard as I could to publicise her Inquiry into Payment Times and Practices in Australia, and encouraged small businesses to complete the survey questionnaire.

Well this week, the resulting report has been released after hitting the desk of the Minister for Small Business, the Hon. Michael McCormack, last month.

For small businesses, especially those who are suppliers to big corporations and multinationals, the content of the report is not new information.  But now, there is an official report from an official inquiry that they can point to for evidence —evidence which (I hope) cannot be ignored by our various levels of Government.  We have long known that cash flow problems are the root cause of most business insolvencies in Australia.  Yes, not all small business owners are blameless, and increasing small business management and financial skills will certainly help.

But they should not be expected to act as banker for the big end of town.

It’s official.  Large companies are the worst payers.

Now it’s official.  The worst payers in Australia are large companies and multinationals.  More than half of the business owners who completed the survey said that these customers were “always” or “frequently” late. One in five payments by Government departments and their agencies are also “always” or “frequently” late.

The Inquiry didn’t just concentrate on late payments.  They also examined the issue of extended payment terms, where large customers impose payment times that go beyond industry standards – up to 120 days. If the payment terms are 120 days, and then the payment is late as well, the small business comes under intolerable stress- not just to their cash flow, but to their physical and emotional health as well.

So what happens to payment times now?      

The Inquiry’s final report has 10 recommendations for Government, all of which I heartily applaud.

Recommendation 1:

The Australian Government to adopt a 15 business day payment time by July 2018. All levels of government to consider adopting.

Recommendation 2:

The Australian Government to require its head contractors to adopt the payment times and practices of the procurement through its supply chain. All levels of government to consider adopting.

Recommendation 3:

The Australian Government to extend its payment policies to all its agencies and entities. All levels of government to consider adopting.

Recommendation 4:

The Australian Government to publish its payment times and policies, and for all its agencies and entities, with performance against best practice benchmarks. All levels of government to consider adopting.

Recommendation 5:

The Australian Government to mandate the use of Project Bank Accounts in public works and construction projects. All levels of government to consider adopting.

Recommendation 6:

The Australian Government to procure from businesses which have supply chain payment times and practices equal to or better than its practices. All levels of government to consider adopting.

Recommendation 7:

Industry codes which regulate business to business transactions to include best payment practices including set payment times.

Recommendation 8:

The Australian Government to introduce legislation for larger businesses to publicly disclose all of their payment times and practices and performance against those terms. Larger businesses being the top 100 listed on the ASX and multinationals.

Recommendation 9:

Australian Government to introduce legislation which sets a maximum payment time for business to business transactions. Certain industries may need terms greater than the maximum which can be agreed providing they are not grossly unfair to one party. Where a longer term is called into dispute it will be considered an unfair contract term.

Recommendation 10:

Governments should encourage the adoption of technology solutions, such as e-invoicing, to assist business to streamline administrative tasks and facilitate payment practices.

The Response?

The Business Council of Australia has already responded with the offer of a voluntary code of practice.  Refreshingly, Kate Carnell has rejected that offer.

The Victorian Government has just this week announced that it will introduce a voluntary payment code from 1 July this year.  Under the Victorian Code, all businesses will have to pay their small and medium suppliers within 30 days. However, Ms Carnell has pointed to the UK experience, where the Government introduced a voluntary code.

“We think a voluntary code will be signed by the good guys and those that aren’t will just ignore it. That’s what happened in the UK [which has a voluntary code].”

And Justice for all

To round out the report, Ms Carnell has also called for a better (affordable) judicial solution for small businesses who need to enforce contract payment terms.

I’m not sure how that particular suggestion will fly, but with the other 10 recommendations in the report, we will hopefully begin to see some long-overdue action on the part of the Small Business Minister.

To view the full report, click here.

Bronwyn Reid

12th April 2017