Subcontractors are set to enjoy shorter payment terms with news that the federal government is extending the maximum 30-day payment terms to all subcontracting businesses operating within its various agencies and departments.
Research earlier in the year by SME lender Scottish Pacific found that almost 93 per cent of the 1,200 businesses surveyed suffered lost revenues because of cash flow problems.
Late payment of invoices is often cited as a major contributing factor to cash flow constraints.
The government last year amended its contract terms to ensure that 30-day payment terms were the norm, and this latest revision extends the same payment time frame to subcontractors down the supply chain.
“I commend the Department of Finance for listening… and changing the ‘Subcontractor’ clause in its Commonwealth standard payment terms to include payment terms of 30 days or less,” said Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman.
“In addition to this, the same obligation is to be included in every secondary subcontract. This means the payment term of 30 days or less will be in every ‘Contractor’ and ‘Subcontractor’ contract the ‘Prime Contractor’ employs.”
Ms Carnell noted the updated requirements will also be included in pre-drafted contract terms.
“The 30 days or less payment time, and inclusion of only relevant subcontractor obligations, is a significant step in the drive for fairness and balance in Commonwealth projects,” Ms Carnell said.
“We expect all Australian government departments and agencies to use this clause in contracts and give small businesses and contractors peace of mind, financially and mentally, when working with government.”
The federal government has led the way in reforming its payment processes to be more SME-friendly, while state governments, by contrast, have been among the slowest to pay their invoices, along with many multinationals.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.