Around 90% of small business failures are due to cashflow problems - and late payments to small business are one of the largest factors creating this problem. Within that context, the Prime Minister’s announcement that the Federal Government will advance a multi-pronged solution to late payments to SME’s is very welcome.
Work completed by the Australian Small Business and Family Enterprise Ombudsman during 2017 revealed that Australia was the worst in the world in terms of the time taken by big organisations to pay small and medium-sized businesses.
“On average, payments to small and medium-sized businesses are being made four weeks late, placing significant strain on small business owners who are effectively operating as banks for big business”, said COSBOA CEO Peter Strong.
“The importance of this problem is evidenced by the fact that more than 500 businesses have reported late payment problems to the Ombudsman’s 2018 Survey in just 4 days”, said Mr Strong.
The practice of extended payment times first occurred during the global financial crisis in 2008, when larger organisations negotiated longer payment times with their small business suppliers in return for continuing supply contracts.
“Despite the global financial crisis having ended eight years ago, payment times have continued to blow out to the point where some small businesses are now being regularly required to wait up to 120 days for payment of a correctly rendered invoice”, said Mr Strong.
COSBOA supported the Business Council of Australia’s voluntary late payment code, which was launched last year to encourage better payment practices.
“Our hope was that the BCA Supplier’s Code would become a model for all large businesses in terms of payment practices to small business – but unfortunately that has not happened”, said Mr Strong.
“We applaud the businesses that have signed onto the BCA Code, and the BCA for showing leadership in this area, but we are disappointed that there are still a large number of large organisations - including State/Territory agencies - that regularly pay invoices late”, continued Mr Strong.
The measures being proposed by the Morrison Government provide powerful messages back to big business that regular and consistent late payment practices are no longer acceptable. These measures will require big businesses to report payment times annually, and to include assessment of payment practice behaviours in future tender decisions for government work.
“These measures will significantly increase the pressure on large organisations (both corporate and government) to pay invoices on time. And that is great news for Australia’s 2M small business owners and the 4.5M other Australians that they employ”, concluded Mr Strong.