Big businesses that win lucrative federal government contracts will soon be required to pay their own suppliers within 20 days, in the latest move by the government to address late payments to small businesses.
Days after the New South Wales government outlined plans to force its suppliers to pay their subcontractors faster, small business minister Stuart Robert has announced a similar policy will be rolled out for contracts from as many as 100 Commonwealth agencies.
The Payment Times Procurement Connected Policy will apply to businesses that have annual income above $100 million and federal government contracts worth $4 million or more.
Those businesses will be required to pay supplier invoices of up to $1 million within 20 days or face interest penalties. The policy will be implemented by October 1, 2021.
Given their income level, these large businesses also fall into the group that need to publicly disclose their payment times and practices under the government’s Payment Times Reporting Scheme, which is designed to improve transparency around payment practices.
The Morrison government has already committed to paying its own suppliers within 20 days for invoices up to the value of $1 million, or in five days when e-invoices are used.
While somewhat limited in scope, the new policy is a “positive step”, says incoming chair of the Council of Small Business Organisations Australia, Matthew Addison.
“It sends a strong message that the government is seeking to improve the cashflow cycle of small business,” he tells SmartCompany.
Small businesses are too often considered last when it comes to payments or considered by big businesses to be less strategically important, says Addison, but these businesses no longer have excuses not to pay invoices swiftly.
“We have an economy with efficient invoicing practices, through the e-invoicing program, and faster payment processes by adopting effective digital payment systems,” he says.
“Delaying payments due to process is no longer acceptable.”
In a statement, Minister Robert said dealing with late payments to small businesses is “in all of our interests” as it will help such businesses “prosper, grow and employ more Australians”.
In the same statement, Finance Minister Simon Birmingham said the government is also working to increase the number of Commonwealth contracts awarded to SMEs, including by allowing government agencies to directly procure goods and services from SMEs to the value of $200,000.
According to Birmingham, SMEs were awarded 51.6% of Commonwealth contracts by number in 2019-20 and 25.2% by value.
Guidelines for the Payment Times Procurement Connected Policy are available online here.