Why the need for action?
It has long been a gripe of Australia’s SME community that larger companies withhold payment of invoices to small businesses, pocket the interest earned, all while the supplier suffers serious cash flow constraints that impede further growth.
Indeed two straw polls conducted on the My Business website demonstrate the severity of the problem – almost a third (31.8 per cent) said that capital/cash flow is the biggest barrier they face in scaling their business, while 16 per cent suggested that enforced payment terms is the single best thing the government could do to support their business.
“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,” suggested one My Business reader in commenting on an article about businesses withholding employee superannuation entitlements.
“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.”
What is changing?
In a sign that progress on this issue may at last be coming to fruition, 32 large organisations operating in Australia have signed up to the new Australian Supplier Payment Code, unveiled by the Business Council of Australia.
“The launch of the Australian Supplier Payment Code begins a new age of cooperation and mutual respect between businesses big and small,” Business Council chief executive Jennifer Westacott said in a statement announcing the new code.
“We know paying business suppliers promptly and on time is critical to supporting healthy cash flows and working capital, and ultimately supports a business’ viability and ability to expand. Although average payment times have fallen across the economy, many small businesses still report that they are facing unsatisfactory delays in payment of up to 120 days.”
According to Ms Westacott, trade between businesses of all sizes in Australia is valued at around $520 billion annually – meaning better payment terms for SMEs has a substantial benefit not just on these businesses, but on the economy as a whole.
“Evidence from within Australia and overseas shows that voluntary, industry-led codes have greater ‘buy in’ from businesses, ultimately benefiting everyone concerned and avoiding cost to taxpayers.
“This code also obliges large companies to help small business suppliers implement new technologies and practices that will assist them with faster, more efficient invoicing and payment.”
Reaction to the move
Reaction to the move has been overwhelmingly positive.
Peter Strong, chief executive of the Council of Small Business Australia, said, “The commitment to prompt payment is obvious and we have already seen key members of their council embrace improved payment processes.
“This includes Coles, Rio Tinto, Telstra and Woolworths – crucial players in the Australian business community. We know many more big businesses will sign up and this will provide better business conditions in the economy and a healthier small business community.”
A number of organisations – including the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and the Institute of Public Accountants (IPA) – have long pushed for government action on payment terms.
However, Small Business Minister Michael McCormack said it was encouraging to see the industry acting of its own accord on the issue, and welcomed the new code as a “positive first step”.
“I am pleased to see [the] industry taking proactive steps to ensure small business invoices have reasonable payment terms and are paid on time by a number of big businesses, and I encourage more big businesses to follow suit,” he said.
“I understand what it’s like to run a small business and wait too long for payment. When you’re trying to pay wages, grow your business and feed your family, you know you can’t be used like a bank.”
Mr McCormack added that he plans to keep a watchful eye on the code and its signatories to determine its effectiveness in delivering real change to benefit SMEs.
Initial Australian Supplier Payment Code signatories:
- AGL Energy Limited
- Alcoa of Australia Limited
- Australian Securities Exchange
- Australian Unity
- BAE Systems Australia
- Bain & Company
- Bendigo and Adelaide Bank Group
- Citi Australia and New Zealand
- Coca-Cola Amatil Limited
- Commonwealth Bank of Australia
- ExxonMobil Australia Pty Ltd
- GPT Group
- HSBC Bank Australia Limited
- Insurance Australia Group
- Navitas Limited
- National Australia Bank
- Qantas Airways Limited
- Rio Tinto
- Suncorp Group
- Sydney Airport
- Telstra Corporation Limited