Engineering company UGL has reversed a decision to extend payment terms for SME suppliers following a watchdog’s intervention.
The Australian Competition and Consumer Commission (ACCC) discovered in September 2019 the company had extended payment terms for SMEs to 65 days from 30 days without consultation.
The firm told suppliers requiring earlier payment to contact supply chain finance company Greensill Capital, and to accept a discount on their UGL invoice.
Supply chain finance has been criticised by the Australian small business and family enterprise ombudsman Kate Carnell, who raised concerns about its use in a report in April this year.
The ACCC said it had also been looking into issues raised by extended payment terms and reverse factoring and had contacted UGL and Greensill Capital.
UGL said it plans to change payment terms back to 30 days for SME suppliers by early next year, while Greensill Capital recently announced moves to cut services to clients who did not pay SMEs within 30 days.
Carnell welcomed UGL’s commitment and praised Greensill Capital’s “leadership”.
She also welcomed a commitment by the Victorian Government’s to pay SME suppliers’ invoices within 10 business days.
The new terms, which will apply to all new contracts valued under $3m from 1 January 2021, are “exactly what small businesses need as they recover from months in lockdown and severe trading restrictions”, she said.
“We know that late payments make a huge difference to small businesses’ bottom line and that is only amplified for small businesses that have faced unprecedented challenges in 2020,” Carnell added.
Carnell cited CreditorWatch data for October that showed businesses were being paid an average of 31 days overdue – up 157% on the same period last year.
Rod Sims, ACCC chair, said: “Supply chain financing is not unlawful, and in some cases can be a good option for small businesses.
“However, we are keen to ensure that supply chain financing is not used to push out payment terms for small business suppliers or require them to accept a discount in order to be paid within 30 days, especially during the Covid-19 environment.”
The regulator said it aimed to monitor the use of supply chain financing and extension of payment terms in small business contracts because of concerns under Australian Consumer Law about unfair contract terms and “unconscionable conduct”.
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