Prime Minister Scott Morrison has heaped pressure on corporate Australia to pay SME invoices within 20 days or risk losing future government contracts.
Mr Morrison said that there has been progress in addressing late payments and poor payment times for small businesses, but that many “are still being shouldered with the burden of long payment times”.
“To address this issue, we will work with the sector to develop an annual reporting framework, requiring large businesses over $100 million turnover to publish payment information on how they engage with small businesses,” he said.
“It will cover 3,000 of the largest businesses in Australia – including foreign companies and government entities.”
Crucially, those same companies seeking to tender for government contracts will also be required to match the federal government’s 20-day standard payment policy.
In a bid to drive this change at a state level, Mr Morrison said that small business payment times will also be raised at the next Council of Australian Governments (COAG) meeting on 12 December.
“The government currently pays invoices under $1 million within 30 days, but we must do better,” he said.
“By 1 July 2019, our commitment is to pay invoices under $1 million within 20 days.
“All levels of government should set the standard, and there should be no excuses for not paying small businesses on time. We want all states to follow the lead of New South Wales and adopt this practice.”
Such an approach to tackling the problem of SMEs being disadvantaged by unfair payments terms was labelled a world-leading and substantive shift by MYOB CEO Tim Reed.
“For the Prime Minister to aim his government towards paying small businesses within 20 business days is a fantastic commitment in itself, but to work through the Council of Australian Governments and make sure all state governments follow this aspiration is better than I’ve seen anywhere else in the world,” Mr Reed said.
“Decisions like this, and a directive for businesses to increase their payment term transparency to small businesses and reduce payment time to less than 20 days, are what will lead to the next wave of substantive change.
“The Prime Minister has clearly highlighted the importance of small business to the Australian community.”
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is currently surveying SMEs on the issue of late payments in order to provide a more in-depth overview of the extent of the problem.
Speaking with My Business this week, Ombudsman Kate Carnell said that payment terms remain a source of frustration for smaller businesses.
“It is a major problem,” she said.
Within just over a week since the survey first launched, Ms Carnell said her office had already received 554 responses as of Monday, 19 November.
“Three hundred seventy-three (373) companies were named [as having unfair payment terms]; five companies were named more than 10 times,” she said.
“We’re finding that there are still not an insignificant number of companies that have terms greater than 60 days as standard terms – and companies are willing to tell us that is the case. So this is a real, real issue. It hasn’t gone away.”
Ms Carnell said that some companies have worked hard to improve their payment processes and standard contract terms, citing Westpac as one example.
“We’ve had a look at the work Westpac has done to improve their payment times and their methodologies, and they’ve certainly spent a lot of time [and] money to ensure that they can pay within 30 days, which is great,” she said.
“So there are some companies doing the hard yards, but I tell you what, there are a lot that aren’t.”
The ombudsman added that the Business Council’s Australian Supplier Payment Code, which encourages corporates to make voluntary pledges to pay SMEs within 30 days, is currently under review, noting that it is “not working very well at the moment”.
“There’s only about 80 signatures and not that many of the BCA’s own members have signed up.”
Prushka Fast Debt Recovery recently revealed a ranking of the slowest-paying industries, which found that small businesses as a collective are among the most prompt at making payments.
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