The Small Business and Family Enterprise Ombudsman, Kate Carnell, has launched an inquiry into the late payment of small businesses in Australia and is considering potential regulatory and market-based measures.
“Here in Australia, more and more small businesses are falling victim to the unscrupulous payment practices of some big businesses — and even some governments — that are, quite frankly, a drag on productivity,” Carnell says.
From stipulating unfair payment terms in contracts, to simply not honouring agreed payment times, Carnell says a number of big businesses are “effectively treating the little guys as banks by forcing them to provide interest free loans in the form of late paid or unpaid invoices.”
“From today, my office – in conjunction with state-based Small Business Commissioners – will be dissecting the payment practices of large companies and governments at all levels, when they do business with small enterprises,” Carnell says.
“This Inquiry will shine a spotlight on the issue and assist in determining how widespread the problem is. It will provide the impetus for meaningful change and help ensure Australia has the shortest payment times in the world, not the longest.”
The move is likely to have popular support. Last month a survey from MYOB found that 77% of businesses have felt some sort of business impact from a customer not paying their bills on time.
An international study of 30,000 invoices from 80 countries found that Australian businesses were being paid 26.4 days late, far later than the next latest country, Mexico, with 18.6 days, or South Africa at 16.5 days late.
“Late payments quickly become a vicious cycle in the small business sector,” says Matt McFedries, CEO of automated receivables management company Debtor Daddy. “‘Not having the cash available to pay bills’ is the number one reason for not paying bills on time according to ongoing research by Debtor Daddy.”
Carnell says that chasing overdue payments “cause stress and anxiety,” are “a waste of time” and “fundamentally stymies growth by forcing the business to focus on surviving rather than thriving”.
“If small-to-medium sized businesses start falling off a cliff, economic conditions in Australia will certainly follow,” says Carnell, “so it’s incumbent on big businesses and governments to follow best practice and pay their bills on time.”
“Larger firms holding out on paying small businesses creates a ripple effect felt in dozens, hundreds and potentially thousands of small businesses,” says McFedries.
“For those organisations that have the means to pay bills today, should pay, for the benefit to the entire economy. The cost of late payment is felt most keenly for SMEs because there’s less separation between the person and the business. They personally feel the stress that comes from not having enough money in the bank and having to make excuses to their supplier and asking for extensions and answering to their significant other as to why cash is tight. Sometimes big business doesn’t appreciate that.”
Statistics released by the Ombudsman’s office reveal that cash flow is responsible for the failure of 90% of Australian small businesses, with the average small business owed $13,200 at any one time. The total owed to small businesses in Australia was estimated to be around $26 million.