The Federal Government has announced changes that will encourage its agencies to ensure all SME contracts are paid on time, and has pledged to pay the interest on the outstanding payments that aren’t.
The government announced this week that invoices will be automatically generated after 60 days for all government agency contracts with SMEs where the interest accrued is greater than $10 and the contract does not exceed $1 million (including GST).
While around 60 per cent of the Commonwealth’s 80,000 contracts each year are with SMEs and 97.7 per cent of invoices for said contracts are routinely paid within the specified time, Minister for Finance and Deregulation Penny Wong says that the chance will see agencies more likely to pay invoices on time to avoid having to pay the additional interest.
“Currently, businesses have to issue separate invoices to agencies if they want to claim interest on late payments, however this can require additional paperwork, which means many small businesses don’t bother,” Wong explains. “We want to see even more SME contracts paid on time.”
The Government says that the types of SMEs that may be benefit from the change include caterers, newsagents, building contractors and office suppliers. Interest will be calculated using the ATO’s annual general interest charge rate reported on a quarterly basis, which currently sits at 11.37 per cent.
“Small businesses have an important role in providing goods and services to the Government,” Minister for Housing, Homelessness and Small Business, Brendan O’Connor, adds. “We want to build on this relationship and ensure that all invoices are paid within the agreed timeframe because it does make a significant difference to a business’ cash flow.”
Businesses will still be able to invoice agencies directly after 30 days of late payment, as is currently the case and the automatic payment will be implemented by a Department of Finance Circular to all agencies.
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