The small business ombudsman has said that she may have no other choice but to recommend federal legislation requiring all businesses to be paid in 30 days in order to fix payment times.
Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has said that if big businesses continue to flout reasonable payment terms, she will have no choice but to recommend federal legislation requiring all businesses to be paid in 30 days.
In the past week, both Telstra and Rio Tinto have moved to 20-day payment terms for SMEs, after they faced scrutiny for engaging technology to push suppliers to shave their invoices in exchange for prompt payments.
Given their policy reversal, Ms Carnell has opined that “there is no reason why other big businesses can’t do the same”.
“Australia’s big businesses have had more than enough chances to do the right thing, so if they can’t follow Telstra and Rio’s lead, I will have no choice but to recommend legislation requiring 30-day payment terms across the board,” the ombudsman said.
According to her office, late payments by large businesses to small businesses account for 53 per cent of all invoices; that’s $115 billion paid late to small businesses – equivalent to $7 billion of working capital to Australian small businesses every year.
“The economic case for faster payment times is clear, not just in Australia but internationally,” Ms Carnell said.
“When the Obama administration moved to 15-day payment times, a Harvard Business School study found that created 75,000 jobs and delivered an additional $6 billion to US workers’ pay packets.”
‘Code is unenforceable’
Last week, the small business ombudsman slammed the Supplier Payment Code, explaining that not only is the definition of small business wide open to manipulation, the code itself is unmonitored and unenforceable.
In releasing the ASBFEO position paper outlining the key preliminary findings of the Supply Chain Financing Review on Friday, Ms Carnell said that while supply chain finance is a legitimate and effective tool that can be used to free up cash flow for small and family businesses, too many big businesses have extended payment times and then offered supply chain finance.
Ms Carnell said: “So far, our Supply Chain Finance Review has revealed the voluntary Supplier Payment Code is just not working.
“The Code is voluntary, there is no compliance monitoring and it’s actually unenforceable.
“The fact is that all businesses, regardless of their size, should be paid in 30 days, and supply chain finance should be available to those small businesses that want to be paid faster.”
The final report will be handed down at the end of March.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.