Large Australian companies are offering small business suppliers average payment terms of 37 days, despite ongoing calls from the Council of Small Business Organisations of Australia (COSBOA) for a national benchmark of 14 days.
The federal government launched its payment times register yesterday, allowing small businesses to view information about the payment times and invoicing methods of more than 6000 large businesses with an annual turnover of more than $100 million.
The register shows the average payment term in small business contracts is 37.27 days. Big businesses in the manufacturing industry offer the lengthiest times, with small business suppliers receiving average payment terms of 48.62 days.
Alexi Boyd, chief executive of COSBOA, says she strongly supports the creation of the public register, which was an initiative she assisted the government with.
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“What we want to see is small businesses being paid fairly and equitably and not being simply a line on the balance sheet,” Boyd tells SmartCompany.
“Essentially, big businesses should be paying within 14 days,” she adds.
More than half of the companies that are required to submit reports have small business suppliers, with the agriculture, construction and administrative and support services sectors having the highest procurement rates from small businesses at 40%.
Across all sectors, less than 3% of small business invoices are paid after 90 days, and 44% of invoices are paid within 20 days.
Boyd says the register is an extremely valuable resource and she looks forward to the launch of an additional search tool for suppliers that is yet to be rolled out.
“Our concerns are about accessibility and making sure that small businesses know the register exists,” she says.
Concerns about supply-chain financing
Small businesses can view details about the payment terms offered by large companies, including whether they use supply-chain financing or request subscription or membership fees.
More than 200 businesses reported using some form of supply-chain financing, such as settlement discounts, which is when the larger business offers its small business supplier a discount on invoices that are paid early.
Supply-chain financing is a practice small business groups have widely criticised because it can result in longer payment terms or coerce small businesses to accept a reduced rate in order to receive a payment faster.
Boyd says while there is a place for supply-chain finance in business-to-business payments, it needs to be used in an “open and honest way”.
“We have concerns about small businesses being pressured into this ridiculous notion that you will get paid in a reasonable time frame, if you agree to supply-chain financing terms,” she says.
The Australian Small Business and Family Enterprise Ombudsman Bruce Billson welcomed the launch of the payment times register, saying it’s an “important first step” in addressing late payments.
“While it’s still early days, the register reveals that more than 30% of invoices are being paid late by big business for what has already been earned by small business,” Billson said.
“That’s incredibly disappointing.”