Australian Small Business and Family Enterprise Ombudsman Bruce Billson interview with Leon Delaney.
14 November 2022
Subject: Payment Times for Small Business
There’s new data from the Payment Times Reporting Regulator. You've never heard of that, have you? No, but it does very important work because this new data reveals that roughly one in four big businesses take four months or more to pay their small business suppliers bills.
According to the data, big businesses in manufacturing, retail trade and construction were the worst offenders. Only about 14% of them are paying their suppliers within 30 days. And of course, suppliers are generally small businesses.
And for small businesses, well, cash flow is their lifeblood. Joining me now, Australian Small Business and Family Enterprise Ombudsman, Bruce Billson. Thanks for joining us today.
Leon, fab to be with you and your listeners. What a great intro. I love that little bit of Star Wars to get us going.
I know, it stirs the soul, doesn't it? Absolutely. You should listen every day, Bruce.
Well, I should, but I'm busy listening to small businesses saying these figures are appalling. And to quote my inner John McEnroe after a bad line call, ‘you can't be serious’. Now, the problem is this data reveals an appalling story of big businesses really treating their small business suppliers in a shabby way and really delaying payment when we know cash flow is the lifeblood of so many small and family businesses.
What happens to small businesses when they're starved of their cash flow in that way? They get left with all sorts of challenges, including meeting their own obligations to pay staff, for example.
Well, that's right. I mean, small businesses can't avoid the demands on their cash. So, you'll often see a number of them having overdrafts, working capital, or as the Reserve Bank has revealed, in 2022 more and more small businesses tapping their own financial resources in order to meet the obligations of the business.
So, what we're saying is good business pays. This is a very important business relationship. Sadly, I think some of the bigger businesses do this because they can Leon, because in a perfect world, and I don't want to sound too much like an economist right now, but the cost of funds would actually be cheaper for the bigger business than the small business. So, you think the small business would add a little extra on top of their invoice to cover the fact that they're being starved of the cash and the big business is benefiting from it.
We know that doesn't happen. We know that a small business can be a taker of terms and at times prices from bigger business. And here, even the ambition to pay a fairly ordinary performance rate, which is 30 days, that's the goal that's been set by the Business Council of Australia, only two-thirds of big businesses adopt that fairly ordinary standard to pay within 30 days.
But worse still, only a third meet that ambition. So, they’ve hardly shot the lights out on good payment times.
And even that 30 days can actually be 59 because you might do the work on the first of the month, send the invoice on the 30th of the month, and then there's another 30 days after that.
And this is the worry that there's a bit of gaming going on, you know, where people contest the detail on the invoice and therefore say it's not an approved invoice and then they'll talk about when the shot clock actually starts. I mean, these sorts of things are unnecessary.
We've seen during COVID, some of Australia's biggest businesses really getting themselves organised and in some cases paying small and Indigenous businesses in just a handful of days.
Government itself, Leon, many of your listeners would know, it's got commitments about payment times or, you know, pay within the agreed time or pay interest is what applies with many small business suppliers to the Commonwealth. So, it's achievable. I mean there's tools out there like eInvoicing that actually make it easier to provide timely payment times.
This seems to be about attitude and appetite. This is where I'm calling on big business to get serious and look after their vital partners that are their small business suppliers.
I'm pleased that you mentioned government there. What sort of standard does the Commonwealth, for example, meet? Because we haven't got those figures in this report. But is the Commonwealth and various state governments, are they good at paying on time?
Yeah, they are. They've actually made themselves commit to, for small businesses, anything from around seven days is not uncommon for small business suppliers.
For those that are linked to significant Commonwealth procurement there's a payment policy that's part of the obligation of a successful, larger tender getting that work, and that's to pay their small businesses on time.
And we're seeing an increasing number of Commonwealth agencies and departments using eInvoicing as a way of enabling that in a more timely way. So, governments actually have been doing a lot of the right things. Occasionally it doesn't go well. That's when my agency gets a phone call. But overall, I'd say, and the data bears this out, you look at some of the better performing areas that are actually paying in a timely way and you start to see public administration and safety are doing better than many other sectors of the economy, whether they're government or near to government? So, you know, government is playing its part and the government here, the new government at a national level, has even signalled that it's interested in going further to make sure the good lead set by the government is something that's emulated by big business.
So, if somebody is running a small business and they're having trouble getting invoices paid in a timely manner, what can they do?
Well, a couple of things. One, raise it with their counterparty. It's always best to flag to a bigger business or any business you're dealing with that something's not working right. A lot of businesses, they might simply not know about the delays that are there and think everything's peachy and the accounts department is looking after it. So, make that call.
Secondly, you know, go back - and we've got some tools on our website about how to raise a grievance about those things. And if all else fails, give us a call. We'll get involved once you've exhausted some of your own ways of trying to bring about better performance, and then we can get involved as well. So, there’s few options that are there Leon.
Fantastic. Thanks very much for your time today.