Australian Small Business and Family Enterprise Ombudsman Bruce Billson extract of interview with Gary Adshead.
6PR
Subject: Payment Times
Gary Adshead
Now if you’re a small business out there, perhaps a subbie, you know the whole domino effect of not receiving payment when you should. You will not be heartened by what you're about to hear, because according to the Australian Small Business and Family Enterprise Ombudsman, only three out of ten big businesses pay their small business customers within 30 days and nearly a quarter are taking 120 days to pay up, according to the newest data.
Let's talk to Bruce Billson. He's the Small Business and Family Enterprise Ombudsman and joins me on the line.
Bruce Billson
Gary, great to be with you and your listeners.
Gary Adshead
Is this showing a worsening trend? What can you say about previous data that compares to this?
Bruce Billson
The previous data wasn't pretty and this is no better. The previous government introduced a Payment Times Reporting Register for 7000 of our largest businesses. So, they're the ones with turnover over $100 million annually. They are obliged to report their payment times performance. And what we've seen, Gary, is two things. One, the aspirations, the terms that are offered, aren't that flash and then the actual performance on payment is nothing short of woeful.
And so, we're trying to urge big business to get serious, to lift their game, to actually recognise that their small and family business suppliers are a vital cog in what they do and really crucial to our economy and our communities. They deserve the respect of being paid in a timely way.
Gary Adshead
My eyes went straight to the figures that you have in relation to construction business because we've seen people going under in the housing building industry at the moment and you've got only 18% of big construction businesses pay their small business within 30 days and that's pitiful.
Bruce Billson
We're seeing that problem pop up in a number of other areas, Gary. Through our assistance line, we're getting dozens of cases where, you know, subcontractors are waiting and waiting and waiting and do all that they can. Even in the recent insolvency numbers, you saw quite a large uptick in the number of corporate insolvencies getting back to sort of where they were pre-COVID. So not more than that, but coming off a really low base. And the greatest increase, a 65% increase, in fact, was in the construction industry.
So, we're hearing a few things in the construction industry. One, is some of the supply chain and frankly, staffing problems are causing delays in finishing aspects of a building.
So, we've seen this in the construction industry where, you know, builders might be waiting to get paid for work that they can't quite finish. Therefore, they're not getting fully paid and they're holding up payments to their subcontractors because of that situation. So, you see that domino effect, Gary, and that's happening a lot in the construction industry and it's hurting an awful lot of businesses.
Gary Adshead
You talk about the domino effects. I mean, generally speaking, the economy, when you've got that sort of cash flow issue for those people down, the food, food chain, what happens?
Bruce Billson
Well, what happens is the small businesses bleed cash. And we know that cash flow is king, that finance is the oxygen of enterprise. You take that cash flow away and all of a sudden one business has problems and that becomes a contagion for the small and family business, often without the access to resources that a big business would have.
And so many small businesses secure their working capital funding by getting a mortgage over their home or personal guarantee.
Gary Adshead
With rising interest rates and so on.
Bruce Billson
It's a diabolical combination of factors that's really straining already challenged businesses. You know, a lot of small businesses are seeing their costs of doing what they do, increase and they're not always able to pass those costs on. So, you're seeing a margin squeeze. There might be lots of activity but not a lot of profit. And then you throw in someone who doesn't pay and on thin margins, someone not paying can really turn a business opportunity into an economic nightmare for a small and family business.
Gary Adshead
People might be listening and think, well, there's got to be laws around this. I know that there's a review underway at the moment. What would you like to see that would come out to try and make this more enforceable so that this doesn't become an ongoing problem?
Bruce Billson
A couple of things. The register itself was supposed to be, you know, a show and tell, if I could put it that way, Gary, where your listeners and those involved with the business could check out what businesses were doing and then weigh that up to decide whether they want to do business with them.
The Register itself is really hard to climb over. I mean, I'm lucky to have one of the best data scientists in the Commonwealth working in my agency, and she's brilliant. But the work she has to do to pull out these numbers from what is a snowstorm of data, including a lot of businesses that don't actually have small business customers. So that gums up the data.
So, I think there's scope to make the Register more accessible and available for people. The other thing too, the Register currently has its top of the table best segment as 20 days or less. I don’t reckon 20 days is that spectacular. There are businesses, and I know in the West some of the mining companies really lifted their game during COVID, and they were paying small and family businesses in four and five days.
I think there should be a category that says, who's paying in under seven days? Give them the glow. Those exemplars deserve the recognition that they are doing the right thing and setting an example for the rest of the big business community, because currently it ain’t that flash.
Gary Adshead
And I use a crude sort of example. I mean, you know me as someone with a household and a budget that you try and stick to, I don't hear too often that the company that I'm buying the services from says, I'll give you 120 days to pay it. It's usually we won't finish the job unless we get the money. So, why should it be any different for a big company that can't manage it if I can?
Bruce Billson
And this is one of the things that's in the review. We know the capacity is there. The Business Council of Australia has a policy for its members paying in 30 days or less. So even amongst those industry associations 30 days, which isn't that spectacular, shouldn't be too much to ask yet so many aren't meeting that fairly mediocre performance.
And that's why one of the things that Dr. Craig Emerson, who's conducting the review is considering, is there a need to add further tools? Is there a need to mandate performance in certain sectors? If disclosure alone is not causing big businesses to lift their game, what else might you need because no small business needs to be told, look, we'll pay you in four months and in the meantime how would you like to tread water?
I mean, that's just the market power playing out to the detriment of a small business who, in a pure economic sense, Gary, a small business borrowing money is more expensive than a big business borrowing money. You'd think it'd be in the big business’ interests not to make the small business have to go and find cashflow supplementation, as that would wash through in higher prices. But we know that doesn't happen either because too many small businesses get ‘take it or leave it’ arrangements. And frankly, you know, in terms of payment times, some of those arrangements are downright shabby.
Gary Adshead
Bruce thanks very much for having the discussion. Appreciate it.
Bruce Billson
It's good to be with you and your listeners, Gary.