Cashflow

“Selfish and short-sighted”: Damming ombudsman report shows big business still lax on SME payment terms

Matthew Elmas /

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Small business ombudsman Kate Carnell has called for the introduction of arbitration in the franchising code.

Some of Australia’s largest businesses have been reluctant to disclose how quickly they’re paying SME suppliers, despite promising to fulfil invoices within fewer than 30 days.

A new report into late payment times released by the Australian Small and Family Enterprise Ombudsman (ASBFEO) today has found while payment times have declined in recent years, it still takes 36.7 days on average for small businesses to get paid by big firms.

The research, which draws on the views of 2,400 SMEs and data from more than a thousand big businesses, found even those who have promised to pay invoices in fewer than 30 days “rarely” do so.

Small business ombudsman Kate Carnell is calling for the creation of an independent reporting framework that would force businesses with more than $100 million in annual turnover to disclose their payment practices.

“The real concern here is the reluctance of large corporations to be transparent,” Carnell tells SmartCompany.

“Even businesses who are paying in 30 days and have signed the BCA [Business Council of Australia] supplier code are unwilling to actually report on how often they’ve delivered.

“I don’t know why you would hide it … it creates the impression they’ve got something to hide.”

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Big businesses rarely pay on time. Source: ASBFEO.

Large businesses told ASBFEO they were concerned disclosing their payment terms would make them less competitive, but Carnell said in her letter to Small and Family Business Minister Michaelia Cash this was coming at the “expense” of small business.

Corporate regulator ASIC should investigate large businesses who have promised to pay small businesses within 30 days but have failed to do so, Carnell says.

The ombudsman has published a list of the payment practices of more than a hundred large businesses in the report, highlighting where SMEs are paid within 30 days and, in some cases, where they are paid in excess of 90 days from issuing an invoice.

Carnell says while it’s widely accepted fast payment times could unlock faster economic growth, big businesses were protecting their own interests at the expense of others.

“It’s selfish and short-sighted,” she says.

Small business still struggling with payment terms

The report reveals many small businesses are still struggling with the effects of late payment terms, with the construction, mining and retail industries emerging as poor performers.

About half of all respondents said more than 40% of their invoices were paid late (in excess of 30 days) last financial year, while a further 28% said more than half (60%) were paid late.

payment times

Construction, mining and retail were poor performers. Source: ASBFEO.

In one case study cited by the ombudsman, a large paper, packaging and recycling business was found to have baulked at calls from its suppliers to implement 30-day payment terms, instead often paying after 65-75 days.

Small-business suppliers reported having to make multiple follow-up calls and emails before they receive payment, taking up to 10 hours of administrative effort.

“We submitted an invoice in October 2018 for $20,000 that has not yet been ‘approved’, the countdown against payment terms does not commence until such approval is given,” the business owner said.

“This invoice might remain unpaid now until March 2019. This is after five weeks of weekly emails and voice messages that to date have been ignored!”

National register on the way

The ombudsman wants to be involved in the creation of a national payments register, a policy the federal government is currently running a consultation on.

Carnell says her office is well placed to administer the program with legislative powers to request contracts and other documentation to keep big firms in line.

However, any scheme that is created must have an appropriate compliance framework to ensure big businesses actually report on their payment terms, Carnell says.

“It needs to be monitored and there need to be deep dives.”

Under a scheme program being mulled by the government, thousands of Australia’s largest businesses could be required to report on their small-business payment terms, including how well they perform against stated targets.

E-invoicing has also emerged as an opportunity to get payment times down for small business, with the ombudsman recommending a review to understand the cost, benefits and barriers to the implementation of the technology in Australia.

Carnell says government and big business need to take leadership on e-invoicing, particularly in ensuring there is a standardised process available.

“There are no technical issues here — MYOB, Xero and others say they’re ready and raring to go,” Carnell says.

“Australia is behind the game, not in front.”

You can access ASBFEO’s full report here.

NOW READ: Government to force Australia’s biggest businesses to pay SMEs quickly if they want federal contracts

NOW READ: “A huge issue”: Ombudsman to examine the effect of late payments on small business cashflow

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Matthew Elmas

Matthew is the news editor at SmartCompany. You can contact him at [email protected].