Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Leon Delaney.

Radio 2CC Canberra

Subject: How small business can get help, insolvency concerns, payment times, solving problems with digital platform providers

Leon Delaney

The latest report from the Australian Small Business and Family Enterprise Ombudsman has revealed a 50% increase in requests for help from business owners that fear another business which owes the money may have become insolvent or are therefore worried about their own ability to meet their financial commitments. Joining me now the Ombudsman. Bruce Billson, good afternoon.

Bruce Billson

Leon. Great to be with you and your listeners. 

Leon Delaney

Well, this is apparently the most significant, most common challenge that small businesses face, getting paid by other businesses. 

Bruce Billson

Certainly from our caseload, and there's about 6500 a year, 40% of those are about just trying to be paid. But also they've taken a slightly sharper focus on what's happening with the other party that they're dealing with. We know that many businesses aren't having a particularly profitable streak right now, that cash flow is a big concern for many. And businesses are hoping, whilst they may have taken all proper care in their own financial arrangements, they haven't gone and done some work or supplied things to another business that's running into trouble, and they might end up not being paid and having to carry the cost of the inputs that help them deliver that goods or service. So that risk of a cascading consequence where the difficulty of one business relates to another being caused, that's a real concern. We've seen noticeable uptick in that kind of inquiry. 

Leon Delaney

The construction sector in particular is notorious for that kind of thing, isn't it?

Bruce Billson

It is, and that's why it's such a prominent part of our statistics. I think you and I and your listeners have spoken before about the construction sector, particularly when it's fixed price contracts, and there might be a delay in getting some equipment, some material. Maybe it might be harder getting the trained staff, the tradesmen that you're looking for. And the inflation pressures that we understand and talk about as cost of living pressures, are cost of doing business pressures. And you can find yourself part way through a project, and then all of a sudden, the other party - where we've seen quite a spike in insolvencies in construction - is unable to pay its bills, and then that has enormous impacts on your own business, particularly if you've laid out money to help meet that contractual requirement in the first place. So that's that anatomy of that cascading concern where the financial challenges of one business can have a really significant bearing on another business and their ability to pay their bills. 

Leon Delaney

And while it is a feature of the construction sector, it's far from being the only sector where this happens. Other businesses also experience a similar thing, don't they, in sectors such as hospitality and similar types of businesses. What can a business do to protect themselves against that? 

Bruce Billson

Well, there's a couple of things, and you're right, it's not just a construction industry thing. Hospitality, where margins are pretty tight at the best of times, it can be really significant there with energy costs really making it more difficult. Input costs, you know, even the interest rates are cost of funds for businesses, become more expensive and customers have less to spend. But even in sectors that are doing well, and we've seen recent results for the major supermarket chains, some big businesses are doing quite well, yet we still know one in four of their small business suppliers are having to wait 120 days to be paid. 

So that brings into question, well, what can you do about it? It's pleasing that the government's focused on the Payment Times Reporting Register and actually making that more useful, so that a small business can check what the form is of big businesses and take account of that. There's also a range of credit monitoring services. That might not immediately jump to mind, but let's go back to your example. Just say we were doing a subdivision, there's new ones going on throughout Canberra and the region, and we were putting the electricity services in, if we're forking out money for cabling and conduit and substations and the like, you'd want to be pretty confident that the subdivider is actually able to pay the bills when it comes. 

You can check these credit reference websites just to see whether they're late on making payments generally, or whether they've got a particular credit risk attached to them. And then you and I could decide, well, we might do that work, but we might want half the money up front before we even start. 

The other thing to think about, too is the Tax Office is up and about. And I'm urging the Tax Office to really be using that credit reference notification process more often, and sooner, so that businesses can take that into account when they're dealing with another business. If that other business owes $150,000 to the Tax Office, I'd be wanting to know that if it did become insolvent, I wasn't going to get trumped by the Tax Office and other secured creditors who are going to get looked after way before we get looked after as a small business. They are a couple of steps you can take, along with a little bit of buffer where that's possible. 

Right now, one in four small businesses, Leon, are reported to have no cash reserves, so they're really running close to the wire. If you're able to, the recommendation is six to nine months of operating expenditure put to one side so that you can navigate those choppy waters and survive yourself, even if you are faced with the setback like what we've described.

Leon Delaney

Although it can be difficult to accumulate that buffer when trading conditions are as tough as they are at the moment. Now, you've also reported that there's a significant number of small businesses having a lot of trouble dealing with digital platform providers. And of course, these days, digital platforms are pretty much the platform that businesses operate on, aren't they? 

Bruce Billson

They are, and it's the fastest growing type of matter we're being asked for assistance with. You and I might be selling miniature goats. They are pure bread. We've trained them well… 

Leon Delaney

You come up with such extraordinary examples, Bruce! Miniature goats. I never thought I was going to go into business selling miniature goats with Bruce Billson, but there you go.

Bruce Billson

And there we are at the Murrumbateman market selling them at market day. But when we're not at the market, we might be promoting the personality of our goats on our website, and then people can buy them through Marketplace or other of these digital platforms. And we might think things are pretty good. But then someone might hack into our account. They might take over our account. They might trash talk miniature goats to our disgust. 

But more nefariously, they might get in there and start promoting other websites. We might have a credit card linked to that account, and they start spending our money on other things. We reach out to that platform provider, and we go to the frequently asked questions on their website, and it says, if you can't get into your account, get into your account to tell us you can't get into your account. That’s how nonsensical and unhelpful the current arrangements are. So, we try and get involved and speak to a real person. It shouldn't be that hard. These digital platforms need to do better. They need to have internal dispute resolution and assistance mechanisms so that long live the miniature goats.

But I use that in a facetious way to point to a very significant problem. If that's our only channel to our customers, all of a sudden, our business is down, we've got no way of reaching those customers, no way of supporting them and delighting them. And that could potentially have really big implications for our business into the future. 

Leon Delaney

I've certainly heard of people having a business presence on social media, and it is their primary platform for selling. And then, for whatever reason, they lose control of the account, they get their account suspended, and all of a sudden they've got no business, and they've got nowhere to turn.

This point you've made about talking to a real person, this harkens back 20, 30, 40, years ago, Bruce, when I was banging on the table and shouting into a radio microphone about the number of big businesses now that when you ring them up, you get an automated recorded message menu system. And I said back then that what we need to do is pass a law that every major government agency, every major public entity and every big business must, by law, employ a real person to answer the phone and direct the call accordingly to preserve the status of proper customer service. It would solve the problem of customer service and unemployment at the same time by creating all those jobs for people to answer telephones. I think I've still got a case, don't you?

Bruce Billson

Oh, visionary stuff. You were before your time then, you are now. What a cunning idea actually having customer service with someone at the other end to give you service. And that's been a central recommendation of ours. We've gone through various digital platform inquiries. The ACCC has done some spectacular work. We know there's things that aren't working right in these sectors and that's what we've been calling for - effective and timely internal dispute resolution and support mechanisms, including scope to escalate to a real person. And if all else fails, they contact us. We get onto them and the deal we've got with some of these platforms is, look, we can recommend to government that they sting you with enormous costs and set up some complicated, expensive system. Or you can work with us to solve these problems. Your call, but we want to do the best by small businesses that rely on these platforms. And boy, can they do better. 

Leon Delaney

I think my rule is probably more relevant than ever now that we're facing the age of chatbots and artificial intelligences. Bruce. Thank you so much, and I'll chat to you again soon.