Payment times will be cut from 20 days to five days for small businesses contracted by the NSW government.
Coming into effect in 2020, the NSW government hopes faster payment times will address issues stemming from cashflow problems, such as investment opportunities and business solvency, NSW Minister for Small Business Damien Tudehope said in a statement circulated yesterday.
Small business ombudsman Kate Carnell last year estimated e-invoicing could save the economy $28 billion over 10 years.
“I also encourage big business to get on board and follow our lead in paying small businesses faster,” Tudehope said.
Big businesses are late in paying over half the invoices they receive from small businesses, resulting in a $7 billion problem that slows the growth of local SMEs, a report released earlier this year found.
On average, larger corporations take 36.7 days to pay small business contractors, an April report by small business ombudsman Kate Carnell found.
Minister for Small and Family Business Michaelia Cash in October said the time it often takes big businesses to pay small businesses is “unacceptable”.
Under the new policy, invoices valued at up to $10,000 can be settled instantly.
In these instances, the state government would pay for goods and services from the small business through the use of a PCard. Essentially, PCards are credit cards used by government staff.
The commitment to cut payment times follows the federal government’s announcement to pay e-invoices within five business days starting in January 2020, in hopes of stimulating jobs and economic growth.
Finance Minister Mathias Cormann also made a statement in November, saying Commonwealth agencies that exceed the five-day timeframe will have to pay interest.
The new turnaround relies on e-invoicing technology, which was established in February in a joint effort between Scott Morrison and New Zealand Prime Minister Jacinda Ardern to save on transaction costs.
The Queensland government has also announced its commitment to pay small businesses within 20 business days by July 2020.
This article was updated on Wednesday, 18 December 2019 to correct the PCard details.