Big businesses put on notice over late payments

18 April 2019

Large businesses need to be more open about their payment terms, in what is a persisting problem of late payment affecting suppliers, according to Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

Businesses including Slater & Gordon, Bunnings Group and Wesfarmers were among those who did not wish to have their payment times published, according to a new report published by ASBFEO this month.

Even signatories of the Business Council of Australia’s supplier code which includes a commitment to paying suppliers within 30 days, are reluctant to share payment times, it said.

“One of our key learnings from this review is the hesitancy of some of Australia’s most well-known companies to be open about their payment terms and, more importantly, how often they actually meet those terms,” it stated.

The primary reason cited for payment terms not being made public is that businesses “fear it makes them less competitive at the expense of their small business suppliers”, the report said.

“There is a persistent trend in Australia of payment times being extended beyond usual industry standards.”

The issue of late payment “adds to the cash flow problem faced by suppliers,” it said.

The report cited an example of a large paper, packaging and recycling company which ignored requests for 30-day payment terms from its small supplier and instead applied terms of 60 days.

The small supplier said it “rarely” receives payment within this timeframe, with payment on average received within 65-75 days and chasing up invoices required up to 10 hours of additional administrative work.

In a survey in 2017, half of suppliers said over 40% of invoices were paid late, and the ASBFEO report said the number “appears little changed”.

Carnell commented: “Where large corporations delay payment to their small business suppliers, small business cash flow is unpredictable and presents significant difficulties in their ability to access and service finance.”

She added: “Cash flow is king to small business - poor cash flow is the primary reason for insolvency in Australia.”

Progress has been made by the federal government. It announced in November 2018 that government suppliers would be paid within 20 days for contracts up to $1m by July 2019. In addition, it plans to develop an annual reporting framework requiring large businesses over $100m in turnover to publish their payment information.

And there are signs of action being taken where companies fail to pay.

ASBFEO has commended a recent decision by the state government of Victoria to ban a building company from tendering for government-funded projects for one month after failing to pay a subcontractor for completed work.

Carnell said: “This action, the first exclusion sanction imposed by the government, is a great first step in ensuring small business subcontractors get paid fairly for their work.”

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