“Late payment should just be an illegal offence unless financial duress can be proven ... this would be easily proven with a small business and much harder for larger companies who don’t pay simply because they don’t want to,” My Business reader Buddha said in response to a story on SMEs dipping into employee entitlements to cover cash flow problems.
“You may think that sounds harsh, but if costs are incurred through late payment and they can't be recovered (and I'm more thinking of small business e.g. home loan interest, credit card charges etc) these amounts in my opinion are being stolen by big business.”
There is a growing push for the government to ‘put its money where its mouth is’ and move to legislate an enforceable national standard on payment terms, to put an end to the problem of big businesses wilfully delaying payments to smaller suppliers. And that push is now only going to get stronger given the lack of such measures in the budget.
“We continue to advocate for even more changes that will support the efficiency, productivity and prosperity of small business. In the absence of holistic tax reform, the government’s focus should move to the necessary micro-reforms to achieve this. One area in particular is the timely payment to small businesses whose cash flow is often held to ransom by the failure of big businesses to pay small business invoices in a timely manner,” argues Andrew Conway, CEO of the Institute of Public Accountants (IPA).
“The commercial world is still lagging behind government agencies, which are required to pay within 30 days or else interest must be paid.”
He adds that such regulatory support for SMEs would be of great support to their everyday cash flows, without eating into the government’s finances.
“We need to do everything in our power to ease the financial burden on small business and cash flow is paramount to their success and survival,” says Mr Conway.
“Healthy cash flow provides ongoing incentive to reinvest in their businesses, which extends the economic benefit of growth and the capacity to employ.
Clive Rabie, head of cloud accounting provider Reckon, agrees that enabling businesses to receive payment for their work on time is a simple yet highly effective means of supporting Australia’s more than 2.1 million SMEs.
“The majority of Australian small businesses have a general payment term of 30 days for good reason. Cash is required to pay employees, purchase raw materials, equipment or goods, among others,” he says.
“Without a healthy cash flow cycle, business growth can be severely restricted, and indeed otherwise successful enterprises can go under. Why should they act as ‘a bank’ for other businesses, especially big multinationals imposing onerous payment terms?”
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has already put forward a number measures to government on payment terms.
These include legislated payment terms, the establishment of a National Payments Transparency Register to independently monitor the payment times of top 100 ASX companies, and for the government to further reduce its own payment terms to 15 business days, and requiring head contractors to follow suit through its supply chain.