Commonwealth government agencies will start making interest payments to small businesses they’ve taken too long to pay under a new late payments policy announced Thursday.
In an effort to reduce payment times to SME contractors to five days, the Morrison government has directed the public service to start implementing e-invoicing technology over the course of next year.
Finance minister Mathias Cormann unveiled the changes to at an Australian Financial Review conference in Sydney this morning, saying his own Department of Finance will be the first in line, set to implement the five-day framework from January 1, 2020.
“E-invoicing will improve business cashflow through faster payment times and deliver significant benefits and efficiencies to suppliers and the Government by reducing transaction costs and handling errors,” Cormann said in a statement circulated by his office on Thursday.
While payments made without e-invoicing will maintain 20-day terms, Cormann said “other agencies” will be implementing the digital capabilities throughout 2020, and encouraged state governments to follow suit.
“We are now prioritising e-invoicing adoption across the Commonwealth,” Cormann said.
Commonwealth agencies that take longer than five days to pay their digital invoices will be subject to an accountability mechanism in the revised policy, requiring them to make interest payments to SME contractors, calculated for every day payment is delayed.
The interest payments will also apply to the broader 20-day timeframe for non-e-invoicing transactions from the start of next year. In an example included in public sector guidelines, a $100,000 contract would accrue $304 in interest if paid 13-days late.
In another example of a five-day e-invoicing timeframe, a contract valued at $100,000 would accrue $350 in interest if paid 10-days late.
The internationally accepted Pan-European Public Procurement On-Line framework is being used as the standard for the Commonwealth’s e-invoicing program — meaning businesses that want to get paid within five days will require the same capabilities.
The five-day timeframe will also only apply to domestic SME suppliers and won’t include contracts or standing offers already in place.
The Morrison government is a proponent of digital invoicing technology and has expressed enthusiasm in the past for implementing the technology widely in Australia, across the public and private sectors.
It comes amid growing cognisance about the affect extended payment terms have on SMEs, with small business ombudsman Kate Carnell last year estimating e-invoicing could save the economy $28 billion over 10 years.
The most recent small business payment times inquiry undertaken by the ombudsman found it still takes 36.7 days on average for SMEs to be paid by big business.
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Minister for Small and Family Business Michaelia Cash last month said it was “unacceptable” for firms to take longer than 30 days to pay small business suppliers, but dodged questions about supply chain finance arrangements.
The small business ombudsman has now launched its own inquiry into supply chain financing, particularly so-called ‘reverse factoring’ arrangements, amid concern SMEs are being pressured to pay fees for shorter payment terms.
But while Cash has the power to extend Carnell’s investigative reach by referring an inquiry into the matter to the ombudsman, the government has not yet done so.