Small business ombudsman inquiry to look at “the one thing that would change lives” for SMEs

Small business ombudsman Kate Carnell has welcomed news of a patent review. Source: AAP Image/Mick Tsikas.

In an effort to reduce the serious impact of late payments on SMEs, the Australian Small Business and Family Enterprise Ombudsman is launching a new inquiry into payment times.

The self-initiated Payment Times and Practices Inquiry will aim to identify damaging trends impacting Australian small businesses when it comes to late payments from larger businesses and governments.

The Inquiry’s launch comes off the back of months of consultation conducted by ASBFEO chief executive Kate Carnell to identify the issues plaguing small businesses across the nation.

Read more: Ombudsman to review questionable small business lending practices by Aussie banks

“When I began the consultations in March, we found that late payments are at the top of the list of issues facing Australian SMEs,” Carnell told SmartCompany.

“The main issue we were told about was bigger businesses paying very slowly, some of them are pretty draconian in terms of payment contracts.”

“Cashflow problems for small businesses involve more than just a lack of customers.”

One of the aims of the inquiry is to make it easier for small businesses to set their own payment terms, but Carnell says she mainly hopes to “shine the spotlight on what actually is happening”.

“If we make this an issue we’ll hopefully shame some of the big players into fixing up their behaviour,” Carnell says.

“No one we’ve spoken to thinks it’s reasonable for small businesses to be used like banks for larger businesses, so on that basis, we have a lot of support for addressing this issue.”

Carnell and her team will be working with the small business commissioners from Victoria, Western Australia, New South Wales, and South Australia, along with the Council of Small Business Australia and the Australian Institute of Credit Management.

The inquiry will also be looking for input from federal and state and territory governments.

Carnell believes that Australia is “lagging behind” other countries when it comes to late payment terms, referring to successful solutions in the UK and the US that she hopes could be implemented here.

Read more: The quirky ways Australian small businesses are collecting late payments

The inquiry will finish in March 2017, but Carnell hopes that it can become an annual or biannual report so that the figures can be tracked over time.

As a result of the inquiry, Carnell hopes to identify practical solutions, and plans to implement them “quickly and effectively”.

Changing lives for SME owners

In Australia, 90% of SME failures are due to cashflow problems, and 27% of SME owners are forced to take on loans to pay suppliers or wages. On average, the amount owned to a business at any one time is $13,200, says ASBFEO.

“If we can improve cashflow for SMEs by having bigger businesses and governments paying quicker, it would make a huge difference,” Carnell says.

“It’s about what’s reasonable. We think that a 30-day payment period is reasonable, but we’ll also be floating the idea of a 15-day period.”

The inquiry has launched alongside a website that allows small business owners to share their thoughts and have their say, and Carnell hopes to do some roundtable meetings with SMEs who want to be more involved.

“Through all my consultation I’ve found that if there’s one thing that would change lives for SMEs, that would be being paid quicker,” Carnell says.

“If money doesn’t come in at the same time it goes out, all it takes is one bad week or bad month to really cause a problem.”

The inquiry’s terms of reference are available at www.asbfeo.gov.au/inquiries and SMEs can also provide feedback via this link.

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Steve Smallman
Steve Smallman
4 years ago

I agree, where I work, an SME, we are forced to accept increasingly drawn out payment terms or not get a contract.

Even when payment terms are agreed as 30 days, the larger companies require us, as the supplier, to enforce their internal policies. We are regularly told that without a purchase order we can’t get paid. Issuing a purchase order is an internal issue. Challenge the customer on the fact that they have shifted the burden of their internal compliance checks onto the supplier and their response is invariably if you don’t like it, don’t supply us.

Can I suggest:
legislated payment terms of not more than 30 days from date of invoice,
interest after that date of at least 4% above the current overdraft rate,
interest chargeable from date of invoice, and
a penalty of $100 per month in addition to the invoice and applicable interest chargeable.
The legislation be written so that all contracts must incorporate these provisions. If silent, contracts are deemed to incorporate them, and they cannot be written out “by agreement”

Pay 30 days, no worries; delay payment and you pay a fee to cover the administrative burden you have generated and the financial cost of your delays.

A trick to watch out for is that customers are now writing contracts with payment terms of 45 days from date of invoice. Then mandating that all invoices be issued on the 25th of the month. In reality, what this means is that work done on the 25th of one month can’t be billed for 31 days (25th of next month) and they then pay 45 days later, a 76 day payment term, hiding behind a contract of 45 days. Take it or leave it.