The federal government has announced five-day payment terms — or interest on the overdue amount — for electronic invoices, a move praised as “a significant step” in tackling late payments to SMEs.
Finance minister Mathias Cormann (pictured) announced at a business summit in Sydney on Thursday (7 November) that effective from the new year, the federal government would commit to paying contractor invoices within five days, where those invoices are issued through its e-invoicing framework.
“As of 1 July 2019, the government adopted maximum payment terms of 20 days for invoices on procurement contracts valued at up to $1 million — down from 30 days,” he said, adding that this covers “95 per cent of procurement contracts entered into by the Australian government”.
“To further demonstrate our commitment to faster payment times, we recently announced that, along with our counterparts in New Zealand, we would adopt the Pan-European Public Procurement On-Line framework for e-invoicing, and that the Australian government would adopt five-day payment terms on contracts where both the government and the business is using this e-invoicing framework.
“I am pleased to announce today that this policy will come into effect from 1 January 2020, as government agencies and businesses progressively adopt e-invoicing capability.”
Mr Cormann said that, where e-invoices are not paid within five days, the government and its agencies would be required to “pay interest on any late payments”.
“The five-day e-invoicing payment policy will apply to contracts valued up to $1 million, where a supplier and a Commonwealth agency both use the internationally established framework for delivering and receiving invoices in an electronic form,” he said.
“A maximum 20-day payment term will continue to apply in instances where e-invoicing is not used.”
The minister said that e-invoicing adoption is being prioritised across the whole of the federal government, with the Department of Finance and Services Australia to be “the first Commonwealth agencies to accept e-Invoices from 1 January 2020, with other agencies implementing the capability over the course of the year”.
“We encourage state governments and the business community to follow our lead using the new framework for e-invoicing,” he added.
It came on the same day that the Australian Bureau of Statistics (ABS) revealed that the number of people directly employed by the public sector has surpassed 2 million (rising by 3 per cent in the year to June 2019 to hit 2.047 million), although only 242,000 of these are employed by Commonwealth agencies.
“Most public sector employment was in state and territory government organisations, with around 1.6 million employees. A further 242,000 people were employed in Commonwealth organisations and 194,000 in local government,” the bureau’s head of labour statistics, Bjorn Jarvis, said.
‘High but important bar’
The announcement was cheered by the business community as being a major step forward in tackling the problem of late payments and the debilitating impact they have on the cash flow of SMEs.
A spokesperson from MYOB claimed it as being “a significant step toward providing small business with the ammunition they need to get paid faster”.
“The Morrison government has been the strongest advocate for reducing payment times and today’s announcement sets an incredibly high but important bar. We hope this ignites a movement towards the wholesale adoption of e-invoicing, a practice we strongly feel will benefit both small business and their customers,” the spokesperson said.
“In research we conducted in May this year with 515 SMEs, 34 per cent of respondents said at least half of their customers did not pay on time.
“E-invoicing is a major contributor to shortening payment times, increasing financial fluidity and alleviating admin time for this extremely busy group of people.”
Meanwhile, Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), labelled the move “a game changer” for businesses directly supplying the federal government.
“This federal government e-invoicing payment initiative sets a benchmark for all states, territories and big business to follow,” she said.
“The next step would be to apply this to businesses right down the supply chain.
“Our Small Business Counts report shows that late payments continue to hamper small business viability, with half of all small businesses reporting late payments on 40 per cent of their invoices.
“This policy will improve cash flow for small businesses so they have the confidence and the capital to reinvest.”
Ms Carnell urged the country’s SMEs to embrace e-invoicing and the time, administrative cost savings and lower handling errors it delivers.
“We know that around 1.2 billion invoices are exchanged in Australia every year,” she said.
“Research shows it costs about $30 to process a paper invoice and about $9 per e-invoice, a significant saving.
“[Yet] around 20 per cent of traditional invoices are sent to the wrong person and about 30 per cent contain incorrect information — delaying payment.
“In fact, research shows the Australian economy would benefit to the tune of $28 billion over a decade, if all businesses switched to e-invoicing.”
What is e-invoicing?
According to the ATO website, e-invoicing — short for electronic invoicing — refers to “the automated direct exchange transmission of invoices between software systems of the buyer and supplier”.
“E-invoicing removes the need to create paper-based or PDF invoices, scan, post or email them, and manually enter them. There are many benefits of e-invoicing; for example, it’s a more efficient method and helps reduce invoices being lost or delayed.
“E-invoices can be sent directly to a customer’s software if both systems are using the same standards, even if the buyer and supplier are using different software. In Australia, we are working with the software industry to use the Pan-European Public Procurement On-Line (PEPPOL) standard which is internationally established.”
More information is available on the dedicated e-invoicing page on the ATO website.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.