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16 November 2016

Early trumps late when it comes to payments - MySmallBusiness

By Kate Carnell

One of the criticisms levelled at president-elect Donald Trump during the highly contentious U.S. election campaign was that the businessman reportedly stiffed subcontractors who'd been hired to undertake work for his various business ventures.

Numerous small businesses – from carpenters to plumbers and chandelier installers – came forward to say they hadn't been paid on time, or worse still, hadn't been paid at all.

Unfortunately, the issue of late payments is far from unique.

Here in Australia, more and more small businesses are falling victim to the unscrupulous payment practices of some big businesses – and even some governments – that are quite frankly, a drag on productivity. 

From stipulating unfair payment terms in contracts, to simply not honouring agreed payment times, a number of big businesses are effectively treating the little guys as banks by forcing them to provide interest free-loans in the form of late paid or unpaid invoices.

Trade-payment data shows fluctuating trends in this space, but perhaps the most striking research comes from a global comparison which found Australia lags behind the likes of South Africa and Mexico when it comes to businesses paying by the due date.  The study compared payment records from around the world and concluded Australia on average paid more than 26 days late; that's almost a month spent waiting for invoices to be reconciled.

Given small businesses typically operate on extremely tight margins, a month is simply too long to be left in the lurch.  As any small business owner will tell you, cash-flow is king; a recent Dun & Bradstreet study reports more than 90 per cent of businesses fail as a result of poor cash flow.  And when you consider estimates on the debt owning to small businesses across the country is as much as $26 billion, it's obvious this situation is untenable.

Chasing overdue payments causes stress and anxiety; it's a waste of time and it fundamentally stymies growth by forcing the business to focus on surviving rather than thriving.

If small-to-medium sized businesses start falling off a cliff, economic conditions in Australia will certainly follow, so it's incumbent on big businesses and governments to follow best-practice and pay their bills on time.

Inquiry to come

From today, my office – in conjunction with state-based Small Business Commissioners – will be dissecting the payment practices of large companies and governments at all levels, when they do business with small enterprises.

The Inquiry will be conducted in association with the Council of Small Business of Australia and the Australian Institute of Credit Management and will examine the trends that have emerged in recent years surrounding the commercial arrangements between large and small businesses, along with governments and small enterprises, and will assess the impacts these trends have in order to identify practical solutions that can be implemented quickly and effectively.

This Inquiry will shine a spotlight on the issue and assist in determining how widespread the problem is. It will provide the impetus for meaningful change and help ensure Australia has the shortest payment times in the world, not the longest.