12 April 2017
ABC AM - Interview with Sabra Lane
SABRA LANE: For years, small business operators have complained about big businesses starving them of cash by stringing out payments to them.
This morning, the Federal Small Business Ombudsman agrees it is a major problem.
Kate Carnell is now urging the Federal Government to legislate to force big businesses to pay small business suppliers within 30 days.
And she wants Governments to lead by example, setting an even tighter deadline - 15 days.
Ms Carnell's conducted an investigation into slow paying, finding the practice 'widespread'.
I spoke with the Ombudsman earlier about her report and recommendations.
Kate Carnell you've found that big business regards their smaller colleagues as "cheap banks".
How widespread is the problem?
KATE CARNELL: We've just done a very large enquiry, had 3,000 submissions from small business, which is a huge number, and we've found it's pretty widespread.
In fact 60 per cent of businesses have told us it's getting worse.
So, large, billion-dollar, multinational companies are extending their payment times to as long as four months.
No small business can last that long.
So, they are fundamentally using small to medium Australian businesses as cheap banks.
SABRA LANE: Now, you're recommending that the Government legislate in this area and firstly want the Government to set the benchmark and for Government agencies to pay suppliers within 15 days.
Is that what you want businesses then to copy?
KATE CARNELL: Look, we think Government should take the lead at 15 days but we think in the business-to-business space probably 30 days is a more realistic figure.
The US Government when to 15 days and Harvard Business School did a review of that, and that movement by the Government created 75,000 jobs and delivered $6 billion to payroll of workers in the US.
So, there's real evidence to show that it produces jobs and growth.
SABRA LANE: Will this be legislated and will it be policed?
KATE CARNELL: What we're suggesting is that the legislation suggests that it should be 30 days, but if businesses think a longer term is appropriate then they can negotiate that as long as it's not unfair to one party.
But if there's a dispute on that contract then a longer term could be deemed to be an unfair contract clause.
So, there doesn't need to be the contract police.
SABRA LANE: How will it be then mediated if there are disputes?
KATE CARNELL: It would be mediated in the court system, or alternatively places like my office which handles business-to-business disputes, so there's a number of ways it can be done.
But fundamentally we've got to put a line in the sand - if large, multinational, billion-dollar companies can continue to push out their payment times for small business, it stops the economy growing.
Small businesses can't invest in their businesses, they can't employ if they don't have cashflow.
Cashflow is the fuel of the engine room in our economy, so we've got to get cashflow moving for small business.
SABRA LANE: You're also recommending that companies will have to publicly report their performance.
What difference do you think that can make?
KATE CARNELL: Look, we think that naming and shaming is a good idea and you can't do that unless we've got actual publication of what's happening with payment terms and times.
They've done this in the UK and we believe it's a good first step.
So, we're talking about the top 100 companies in Australia being required to report twice a year on their payment times, their terms, and how they've delivered against those.
We will be starting the process of setting up a national transparency register website to encourage this to happen.
SABRA LANE: Now, business will argue that this is more red tape - red tape that the Coalition promised to do away with.
How disappointed would you be if the Government does not adopt your recommendations?
KATE CARNELL: Look, we'd be disappointed if the Government doesn't take our recommendations very seriously.
The Government, and for that matter the Opposition and all parts of Parliament, continue to talk about the small business sector as being the engine room of the economy.
Now, for the engine room to work properly we've got to have cashflow.
SABRA LANE: Kate Carnell, thank you.
KATE CARNELL: Thanks Sabra.
SABRA LANE: Kate Carnell, the Small Business Ombudsman.