03 Mar 2020
Time for the big end of town to pay SMEs promptly

Time for the big end of town to pay SMEs promptly

Let’s share the good news first: the average number of days for an invoice to be paid has fallen. The not-so-good news? It’s still above 30 days at an average of 36.74 days - and large businesses are the worst for late payments, which, one study reports, results in a 43 per cent downturn in cash flow for small and medium-sized enterprises (SMEs).

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, conducted an inquiry in 2017 that found late payments have been a persistent problem for businesses in Australia. The final report from the ASBFEO’s Payment Times and Practices Inquiry includes statistics from 2015 MarketInvoice research that puts Australia right at the bottom of the late-payers list, eight days behind the second-last country, Mexico.

The inquiry concluded that something had to be done.

How has the situation improved since 2017?

The final report from the inquiry made 10 recommendations to help improve payment practices. One of the recommendations was the adoption of e-invoicing, and in November 2019 the ASBFEO welcomed the federal government’s move to pay e-invoices within five days or pay interest on late payments.

The Supplier Pay On-Time or Pay Interest Policy comes into effect on January 1, 2020 and requires non-corporate Commonwealth entities to pay contracts up to $1 million within five days of receiving an electronic invoice, if this method of payment has been agreed upon, or within 20 days for all other invoices.

Ms Carnell sees it as a game-changer. “Research shows the Australian economy would benefit to the tune of $28 billion over a decade if all businesses switched to e-invoicing,” she says. “The federal government e-invoicing payment initiative sets a benchmark for all states, territories and big business to follow.”

In addition, the Supplier Pay On-Time Interest Policy ticks the box against another recommendation in the inquiry report, which was that the federal government adopt a 15-business-day payment time.

The BCA Code

Certainly, these are steps in the right direction, but they are only two recommendations of 10 that the ASBFEO put forward in its inquiry report.

Another recommendation was to introduce “legislation for larger businesses to publicly disclose all of their payment times and practices and performances” against industry codes that regulate business-to-business transactions.

In a paper prepared in March 2019 for Michaelia Cash, Minister for Employment, Skills, Small and Family Business, the ASBFEO included an appendix listing the payment terms of a number of large businesses that are signatories to the Business Council of Australia’s Supplier Payment Code (BCA Code).

The code1, launched in 2017, requires all signatories to pay small-business suppliers within 30 days of receiving a correct invoice, and also to help them implement new technologies and practices to speed up invoicing.

What next?

In its Small Business Counts report in July 2019, the ASBFEO makes the observation that “accessing external capital to support cash flow is also becoming more difficult. In February 2019, lending to businesses decreased by 2.4 per cent and since February 2018 it has decreased 3.3 per cent.”

It’s therefore essential that these developments stay on track in the long term and do result in the prompt payment of invoices to SMEs to ensure an upturn in cash flow. The progress made since the 2017 inquiry is welcome news, but further research has to be done to determine whether it’s successful or not.

You can read more about the initial 10 recommendations the ASBFEO made from its inquiry in the Payment Times and Practices Inquiry - Final Report.

1 https://www.supplierpaymentcode.org.au/

This advice is general in nature and has been prepared without taking into account your objectives, financial situation or needs and may not be right for you. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. To decide if QBE’s products are right for you, please ensure you obtain and consider the Policy Wording or Product Disclosure Statements and Target Market Determinations, available online at QBE.com/au. Insurance issued and underwritten by QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFSL 239545).

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