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Why is this Inquiry needed?

Nationwide consultation 

Small businesses comprise approximately 97% of all Australian businesses and provide employment for approximately 4.8 million Australians.[1]  

Throughout 2016, the ASBFEO conducted a nationwide consultation project to engage with small businesses and to hear first-hand from them about the issues impacting their enterprise.

During these consultations, a range of small businesses and family enterprises raised late payments – together with other adverse payment practices of some big businesses – as a critical issue impacting their business.  

The issue is not just contained within a single industry sector; it appears to have become a systemic problem in Australian corporate culture and throughout the Australian economy.

Cash-flow is critical

Cash-flow is critical to any business – large or small; a business must retain sufficient cash-flow to be able to trade.  Collectively Australian small businesses are owed around $26 billion in unpaid debts at any one time. 

When a small business owner is experiencing cash-flow problems, it impacts their ability to grow and to employ. 

Data from the Australian Securities and Investment Commission (ASIC) shows that inadequate cash-flow is the leading reason for business failure.[2]

Power imbalance

Payment terms within contracts between businesses and/or governments detail the timeframe and conditions which a business commits to pay its suppliers. These terms can differ between businesses and industries.

However, if large businesses make these terms too unreasonable or choose not to follow them and instead pay suppliers late (i.e. outside the specified terms), this severely impacts their suppliers’ cash-flow, which can have serious flow-on effects.

Given the imbalance of power in the relationship between large and small business, rather than complain about late payments or adverse payment terms – and in doing so, put the business relationship at risk – small businesses often resort to other sources of funding to cover their cash-flow shortfalls while waiting to be paid.

 

What we know

There are multiple business surveys dedicated to tracking trade payment data for business-to-business transactions.  The Inquiry will take into account all relevant research in order to establish an accurate overview of the current situation. 

The Inquiry will also investigate the specific Commonwealth, State and Territory Government legislation, polices, directives and/or contract terms in relation to procurements, to assess their effectiveness.

 

What can be done?

The Inquiry will look at possible options to address the issues raised throughout the course of the investigative process, including what has been implemented both in Australia and overseas to-date.

For example, in the European Union (EU) there is a legal directive for all member states to address late payments.[3]  Other suggested approaches could include a requirement to report on payment times and practices for large companies, currently being implemented in the United Kingdom,[4] along with industry-led developments.

The Inquiry will also examine the range of options available to a small business to help improve their cash-flow management such as financial technology solutions or improving education and communication approaches.

 

We want to hear from you

The Inquiry is seeking information demonstrating the need for action in relation to current payment practices in Australia.  The views and opinions of all businesses and interested organisations is most welcome.

To make an online submission, click here.

Alternatively, written submission or comments can be emailed to: inquiries@asbfeo.gov.au

If you require immediate assistance regarding a business dispute-or your issue falls outside the Inquiry’s terms of reference-please contact our Assistance Team on 1300 650 460 or info@asbfeo.gov.au.



[1] The Treasury, Small Business data card September 2016, [http://www.treasury.gov.au/~/media/Treasury/Publications%20and%20Media/P...

[2]‘ASIC reports on corporate insolvencies 2014–15’, Australian Securities and Investment Commission, 17 November 2015 [http://asic.gov.au/about-asic/media-centre/find-a-media-release/2015-releases/15-337mr-asic-reports-on-corporate-insolvencies-2014-15/]

[3] Late Payments Directive, European Union, [http://ec.europa.eu/growth/smes/support/late-payment_en]

[4] Department for Business, Energy & Industrial Strategy, 18 February 2015, [https://www.gov.uk/government/consultations/late-payment-challenging-grossly-unfair-terms-and-practices]


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