Brendan O’Connor: The government must decide if it will help small businesses to be paid on time or not

brendan o'connor payment terms

Shadow Minister for Employment, Industry and Small Business Brendan O'Connor. Source: AAP Image/James Ross.

Ask any small business owner and they will tell you cashflow and prompt payment terms are critical to their success.

COVID-19 has only heightened the fragility of the small business operation when larger business refuse to pay their smaller suppliers in reasonable timeframes.

Unfortunately, in Australia we are increasingly seeing large businesses using small businesses as their piggy banks and delaying payment times to boost their own working capital position.

During the COVID-19 crisis we’ve heard some shocking examples of large companies unilaterally telling smaller suppliers that their payment terms are being blown out to 120 days or more from the date of invoicing. For small businesses, this is just not sustainable.

It is therefore a welcome step that the government has introduced the Payment Times Reporting Bill 2020, which introduces a new payment-times reporting scheme.

The Bill requires approximately 3000 large businesses and government enterprises, with annual turnovers of $100 million and above, to publicly report biannually on their payment terms and practices for their small business suppliers. Small businesses will be defined as businesses with less than $10 million in turnover per annum, and a small business identification tool will be created to assist larger businesses identify their smaller suppliers

Federal Labor holds serious concerns over the effectiveness of the Bill. Personally, I think it is rather fanciful to suggest transparency alone will change the culture of payments by larger organisations to smaller businesses.

The Bill is light-touch transparency, unlikely to significantly improve the status quo of self-regulation of payment times by big business.

There are some very straight forward deficiencies with the Bill raised by a number of stakeholders. If the government was serious about supporting small businesses they would simply fix these issues.

Today, a Senate Inquiry is being held, which affords Labor and the crossbench an opportunity to delve into a number of ongoing concerns from multiple stakeholders.

The Bill does not mandate maximum payment times to small businesses, as the small business ombudsman has called for. Nor does it provide for penalties or remedies on invoices that are paid late or with payment times greater than 30 days.

Other concerns raised with the Bill include the extensive use of delegated legislation (the Minister’s Rules), as opposed to the legislation itself, to define a number key concepts integral to the regime.

As we have seen through the Treasurer’s use of “Treasurer’s Rules” in regards to the JobKeeper package, changes were made without notice, rendering many employers and employees ineligible for that scheme. Understandably businesses are concerned about such extensive use of delegated legislation.

Particularly concerning is the coupling of unconscionably long contracted payment times — sometimes 120 days or more — with the practice of supply chain financing, or what has been described as reverse factoring. In these situations, if the small business supplier wants to be paid on time they essentially pay a fee, often to a third party financier. Yes, it is as outrageous as it sounds and is not dealt with effectively in this legislation.

Labor has consistently made the case that prompt payments from large businesses to their suppliers are crucial to SME cashflow.

In fact, I recently wrote to the Minister for Small Business, Michaelia Cash, asking the Department to organise a roundtable to address the issues in a transparent fashion with relevant stakeholders. An opportunity to thrash out, openly and honestly, any concerns with the legislation. An opportunity to really listen to small businesses concerns and implement effective solutions.

For more than six years, this government has failed to act on improving payment times for small businesses.

Action that ensures small businesses are paid on time should happen as a matter of course; it shouldn’t take a crisis to make the government do the right thing.

Minister Cash needs to listen to small businesses and Labor, and decide – will small businesses be paid on time or not?

NOW READ: ‘An act of business bastardry’: Big business keeps squeezing small suppliers on payments in face of COVID-19

NOW READ: Carnell calls on Morrison to outlaw payment times in excess of 30 days for SMEs amid coronavirus invoice extensions

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