Help on its way for SMEs
Published in The Australian
The damage late payments inflict on small businesses cannot be understated. Last year Xero found late payments made by big business to small and medium enterprises (SMEs) were worth $115 billion a year.
That’s a $115 billion anchor dragging across the balance sheets of SMEs.
When trade between SMEs and large businesses is worth more than $550 billion a year, it is clear more needs to be done. If we accept that cashflow is king, then late payments are the potential usurper of every small business.
The government has taken action in this area. We have introduced 20-day payment times for small businesses with federal government contracts up to $1 million. Australian businesses will also have improved cashflow under the Morrison government’s new five-day e-invoicing payment policy that came into effect on January 1. Faster payments will help SMEs to prosper by ensuring they are paid in a timely manner.
Critically, though, the government will introduce the Payment Times Reporting Framework legislation in the autumn sittings of parliament. Draft legislation has been released for consultation.
This legislation is all about transparency. The scheme will require Australian businesses with an annual turnover of $100 million or more to report how quickly they pay their small business suppliers. In addition to this we will also require transparency in how they pay their contracts.
Businesses with nothing to hide have nothing to fear. It merely reflects a clear and simple expectation by the government and the public: pay small business on time, and in full. To ensure companies are providing accurate information, strong compliance and enforcement measures will be put in place.
For example, civil penalties of up to 0.6 per cent of the offending companies’ assessable income may be applied where an entity submits false or misleading information.
Large businesses, keen to side with one movement or another, have been quick to lecture government on a myriad of issues. Without discounting the merits of those issues, it’s clear many big businesses have not addressed the one problem they have the direct power to resolve - ensuring small businesses are paid on time.
With 53 per cent of all invoices from small businesses paid on average 23 days late, this is not confined to just a few in the business community.
If practices within these large corporations do not change, our Payment Times Reporting Framework will name and shame them. And we know that this legislation will work.
Recent decisions by Rio Tinto and Telstra to reverse their payment practices and announce more favourable terms with their small business supply chain are commendable. Their decisions also show that other businesses don’t need to be forced, kicking and screaming, into changing their own practices.
Small businesses are the backbone of the Australian economy and every community. When many small businesses are struggling from drought, bushfires and global economic headwinds, simply paying invoices on time will dramatically improve their recovery and growth.
The Payment Times Reporting Framework is a landmark reform that will increase transparency on big-business payment performance and help small business choose to whom they supply. This is an important step in driving cultural change in business payment performance across the entire economy.
Small businesses should be able to expect a fair go. If big businesses are truly committed to being good corporate citizens, they will pay their small businesses on time and in full.