Small business shouldn’t be a ‘bank for big business’

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The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) today called on the Australian Government to legislate to set a maximum payment time for big businesses to pay their small business suppliers.

The ASBFEO today released findings from its Inquiry into Payment Times and Practices in Australia. The Inquiry found widespread evidence of a growing trend for Australian and multinational companies to delay and extend payments to their suppliers with typical payment times of 30 days moving out to 45, 60, 90 or 120 days.

The ASBFEO Kate Carnell said: “Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance.

“something must be done”

“Something must be done. Small business should never have to act as a bank for big business, helping to finance multinational companies.

“This growing trend for extended payment times impacts the economy by slowing down the flow of cash through supply chains, which limits growth of businesses because they have more capital tied up in financing their operations and it raises the costs for businesses financing longer trade credit to their suppliers.

“When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business. Poor cash flow is the primary reason for insolvency in Australia.”

The key recommendations of the ASBFEO Payment Times and Practices Inquiry:

  • The Australian Government to introduce legislation to set a maximum payment time for business-to-business transactions. Terms greater than this can be agreed when it is not grossly unfair
  • The Australian Government to adopt a 15 business working day limit on payment terms from July 2018
  • The Australian Government to introduce legislation for large business to disclose publicly all of their payment terms and performance against those terms
  • The Australian Government to procure from businesses which have supply chain payment practices equal to or better than government terms.

Ms Carnell said the Australian Government needed to legislate a maximum payment time to set the standard on what was considered an appropriate upper limit on payment times for businesses operating in the Australian economy.

“Terms greater than this can be agreed by both parties to meet specific industry needs, however, where longer terms are called into dispute they may be considered to be an unfair contract term,” she said.

Small business should never be a bank for big business!

Ms Carnell welcomed the proposal for a voluntary industry prompt payment code although overseas experience clearly showed that voluntary measures did not compel all businesses to change their practices on extended payment terms or late payments.

She said although voluntary codes had been shown not to be entirely effective, minimum best practice would require a code to define a maximum payment time and contain a mechanism to automatically apply late payment penalties either through interest measures of other forms of compensation.

Also, minimum best practice would require regular, independent and public reporting to determine its effectiveness.

The Payment Times and Practices Final Report also recommends that the Australian Government maximise its role to set the standard on faster payment times to suppliers.

The ASBFEO recommended that the Australian Government adopt a payment term limit of 15 business working days by July 2018 to set an example for faster payments to suppliers.

Ms Carnell said the standard government payment term was 30 days and a study in the United States had demonstrated that faster payments through supply chains had increased annual payroll by $6 billion and created more than 75,000 additional jobs over three years.

She said that despite government prompt payment policies some government entities paid their suppliers late and many suppliers did not seek a late payment penalty for fear of antagonising the government entity.

The State Small Business Commissioners will also progress discussions on the Report’s recommendations with their respective governments.

almost 50% of businesses are owed more than $20,000

An ASBFEO survey conducted as part of the inquiry found:

  • Around one in two respondents reported more than 40 per cent of their invoices were paid late last financial year
  • Almost half of businesses have more than $20,000 owing to them from late payments and 14 per cent of businesses have more than $100,000 owing
  • More than half of respondents said that large/multinational businesses “always” or “frequently” make late payments. Twenty-one per cent of respondents said Australian Government departments and agencies “always” or “frequently” make late payments.

Ms Carnell said that behind the economic harm done to small-to-medium businesses from late payments there were adverse impacts on mental wellbeing through stress, anxiety and impacts on families.

Want to be part of the conversation? Let us know how this issue impacts your small business by commenting below or sending us a message here. If you have a strong opinion about something which is related to small business in Australia please email us at info@pinstripemedia.com.au. 

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12 COMMENTS

  1. This isn’t just being done by big business! Even small businesses are holding smaller businesses to ransom. Case in point. I confronted a customer today who owes $25k for services provided in May last year. This year I even broke the total invoice down into monthly invoices ($2.5K each) so to date I am asking for 4 invoices to be paid (January through April).
    Today!
    Me: “Hi mate do you think you could see your way clear to pay a couple of invoices?”
    Customer: “I have to find $40k for the ATO … so NO!”
    End of conversation
    No wonder we go out the back door (I have been ignoring “Private” phone calls all day because I am sick of saying I can’t pay the bill until I get paid. Oh the joys of being in small business!!

    • Thanks for your comments Terry. That is shocking to be waiting for a $25,000 invoice to be paid for services you have provided in good faith. Did you mention to your ‘client’ that the ATO has a payment plan system for small businesses who owe less than $100,000? https://www.ato.gov.au/general/paying-the-ato/help-with-paying/ then see what excuse they come up with next! I really feel for you. It just isn’t right when you work so hard and you are taken advantage of. We are going to be looking more investigations into late payment and see what we can do to support you.

      • Hi Kathy Thanks for your advice and I am sure he is fully aware of what the ATO can, and will, do. There will be another excuse I am sure! It is frustrating when you know where his money goes as he is trying to keep up appearances, new vehicles etc.

        • Hi Terry – I’m sure he is too. It is nice sometimes to have an answer for when someone who is avoiding paying you anything at all! Shocking. I’m sure you are already doing this but I did finally have success with making contact with someone who owed me money in my small business. It took me a long time which of course equals money. But I got it in the end. After a few months and no luck I began making contact every single week at the same time. When they stopped answering emails I called the office line. When they stopped answering the office number then I would call this particular small business person on their mobile. I was polite but firm and asked the same thing every time. Admittedly I did have to get a friend who was a lawyer to threaten legal action (and I wish I’d done this sooner as it took me over a year and a half to get the money). Have you sent a letter of demand? https://www.business.gov.au/info/plan-and-start/start-your-business/independent-contractors/letters-of-demand – if not there is useful information here and a sample letter to send. I’m not sure what state you are in but there are options such as seeking help from Legal Aid. In NSW this is their best contact http://www.legalaid.nsw.gov.au/get-legal-help/legal-helpline. Within NSW Tel: NSW 1300 888 529. If you are calling from outside Australia you can contact LawAccess NSW by calling +61 2 8833 3190 between 9am and 5pm, Monday to Friday. They are a great first point of call and are completely free. You can usually only speak with them for about 20 to 30 minutes but you can call them on different occasions. You can also go in to see a lawyer face-to-face.

          I know it is incredibly frustrating and unfair when you have provided a good service (and I’m sure even are out of pocket yourself for products etc). It just isn’t right. It was hard but it did make me feel better when I had actually sent a letter of demand and I was prepared to follow it up to do whatever I had to do just because it was so outrageously unfair and unethical. In my situation it was substantially less than you are owed but was roughly a month’s pay which was enough to make a big difference to my life at the time.

          On another topic we are putting together an article on real small business people and their experiences. It would involve giving a quote (similar to what you have above) and using a photo and including your small business. If you are interested please email me directly on kathy@pinstripemedia.coma.au. I want to do everything I can to help support this issue as it is one I strongly believe in. I know we can do better.

    • Terry, as a matter of priority, you need to register yourself as a Secured Creditor.
      You need to implement Terms of Trade signed by the customer in order to do this, ordinarily prior to transacting.
      You may still be able to implement this, therefore protecting yourself should this customer go into Liquidation.
      If the Liquidators invite him to their party, not only will you not get paid, you will find yourself frocked up and ready to dance to the tune of Claw Back.
      Email me for more information on how you can prevent this happening.

  2. For me the real issue is that this type of activiy hurts everyone, whether they are a smaall business owner or an employee. Extended payment terms make growth much harder – having to finance 4 months of Sales before you receive your first payment requires significantly more capital than having to finance 1 month of Sales before payment. It’s this lost growth that impacts everyone. It’s jobs not created that impact everyone. The recommendations by the ASBFEO will go a long way to helping grow the economy and creat jobs. It should be a no brainer for a Government that is all about jobs and growth.

    • Thanks so much for your comments Michael. Thank goodness the government are showing signs to deal with this huge issue for small business. It does hurt everyone. If you aren’t paid then it makes it difficult for you to pay another small business you owe. I know from personal experience how crippling it can be when I was running my own small business. I’ve had to spent hours every month chasing companies who flat-out lied. I once had to chase a small business (whose owner lived in a flash Sydney suburb) for a year and a half before I was paid for work I’d worked through the night over several nights in a row to deliver well and on time. On another topic we are putting together an article on real small business people and their experiences. It would involve giving a quote (similar to what you have above) and using a photo and including your small business. If you are interested please email me directly on kathy@pinstripemedia.coma.au. I want to do everything I can to help support this issue as it is one I strongly believe in. After all roughly 97% of business in Australia is small business and I also believe small business is going to be the main area of employment in Australia moving into the future. It is in all of our interests to protect small businesses who are doing it tough while working really hard and frankly deserve so much better.

  3. For us it’s not only the cashflow issue, but also the time lost in chasing up the overdue account. I don’t mind so much if the business pays a little slower, what I do mind is having to down tools 4 times to call/email the business before I get paid. I don’t have time to chase you up over and over again, just pay your bills!

    • That’s so true Graeme. The time it takes to chase up overdue accounts is huge. It can save time if you are emailing to have a general email you use after one month late for example, three months late. It isn’t the ultimate answer but I found doing this at least saved me admin time. I also would often text when it was say a month late and not call in the early stages as sometimes this was enough to give people a jolt and pay their overdue invoices. If you have a system in place at least you know you are doing everything you can in the shortest time possible. It is also awful having to make those calls, isn’t it?! We are looking more into this issue and will have more articles upcoming including one step-by-step guide on exactly what you can do as a small business person to chase up late invoices. We are also putting together an article on real small business people and their experiences. It would involve giving a quote (similar to what you have above) and using a photo and including your small business. If you are interested please email me directly on kathy@pinstripemedia.coma.au.

  4. In our business, we have a progressive three month budget which lets us know how much we are able to spend. Sometimes we have to order well in advance to be able to have stock to keep our business running This takes into account all invoices due and if they are not pain on time, it throws everything out of whack and then we find we have to rob Peter to at Paul. I cannot imagine how big businesses can hold small business to ransom by not paying on time, then when they are asked to pay their bill, it is as though they are doing you the favorer. It is very disappointing and stressful and makes you weary about who to give an account to.

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