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27 March 2017



Subjects: ASBFEO Late Payments Inquiry

TOM ELLIOTT: Our next guest is the Small Business Ombudsman Kate Carnell, good afternoon.


TOM ELLIOTT: Are you surprised to see these figures that collectively small Australian businesses are owned $26 billion?

KATE CARNELL: I’m not surprised Tom.  We’ve just done a major inquiry into payment times.  My office has been in place 12 months now and when I first took up the job we went out to small business and asked them what was the thing that was driving them crazy and they said “payment times”.  I was surprised that it was above penalty rates and a whole range of other things all of which were important to them but this was the thing at the top of the tree.  We’ve now done a significant inquiry and we’re going to report in a couple of weeks and it shows that this is a huge huge problem.

TOM ELLIOTT: Who are the perpetrators? Who are the scoundrels? Is it much bigger companies like a large supermarket or something like that or is it just other small business who themselves might be suffering cash flow problems?

KATE CARNELL: Tom, unfortunately it’s big multinationals.  These big overseas companies are the perpetrators.  Companies that are going to 120 days as their standard contract terms.

TOM ELLIOTT: So four months before they pay?

KATE CARNELL: Before they even start to think about paying and this is becoming quite endemic and once that happens, once those big guys go to 120 days plus another 30 days often, then that goes all the way through the supply chain.   I was speaking just on Friday to a mid-sized Australian company in the transport space, they deal with large food manufacturers and others and they are saying they’re seeing this 120 days scenario, it’s hitting their business as a mid-sized business and that of course ends up flowing through the whole supply chain.  If they’re not paid, they can’t pay the next guy.

TOM ELLIOTT: I had that problem recently with a large company which just instead of paying me in one week as agreed paid me in one month.  It didn’t cause me any real issues but I now feel like invoicing them for some interest on the amount.  What can small businesses do because the problem is if you’re dependent on a large company as your customer you don’t want to upset them, do you?

KATE CARNELL: You don’t want to upset them and therein lies the problem.  Small businesses are at the end of the supply chain so they’ve got to pay their staff, they’ve got to pay their landlord, their suppliers because their suppliers won’t supply them if they don’t pay and so they’ve go nowhere to go at all.  You know Tom, 90 per cent of small business that go broke go broke because of cash flow issues.  Some of those are about just not enough customers but an increasing number are because the money going out is much faster than they money coming in and that’s this payment time issue  and we’ve seen really large companies like Mars and Kellogg and these sort of companies going to 120 days and thinking that’s quite reasonable.

TOM ELLIOTT: Is there anything you can do?  If you’re dealing with Mars or a Kellogg or someone like that you presumably can’t just say to them “get stuffed, I’ll go somewhere else” because in many cases there is no somewhere else.  What do you do?

KATE CARNELL: I think what we’re going to have to do and this is contrary to what I’d say normally but I think we’re going to have to have some very real rules, maybe some regulation in this space because what those big companies say is “decisions are made at head office in the US or in Europe or something and we simply can’t move”.  We will be recommending a range of approaches: that is reporting payment terms and times in the public record, the UK’s going down that path; we’ll be looking at a binding code, but the dilemma is if those big companies simply will pay no attention unless it’s in line with the law of the land of the country they they’re dealing with – we’re going to have to take that seriously.  This is getting worse, 60 per cent of businesses told us it’s worse than it was 12 months ago and getting worse by the day because those big companies can get away with it – they are.  I have to tell you something really bad here.  What some of them are doing is having a relationship with a bank and saying, “well look we won’t pay you for 120 days but hey we’ve done this really good deal and you can borrow money from the bank to tide you over at a really good interest rate that we’ve negotiated on your behalf”.  I find that just extraordinary.

TOM ELLIOTT: Yeah, it’s unconscionable.  Thank you Kate.  Kate Carnell, Small Business Ombudsman.