Cash flow is the oxygen of enterprise. If small businesses can’t get paid on time, that has ramifications for their viability and capacity to pay others. The flow-on effects compound right through the economy, and it needs to change, explains Small Business and Family Enterprise Ombudsman Bruce Billson.

Two out of every five of the matters that are raised with my office as a business-to-business dispute involve payment times.

The performance by big businesses to pay their small business suppliers has been particularly shabby, and this has been confirmed by a new report by Dr Craig Emerson into the Payment Times Reporting Act.

The hope that the Payment Times Register would improve big business performance has so far failed, with Dr Emerson’s report to the Australian Government finding “no empirical evidence of a significant improvement in the payment terms and times of large businesses in respect of their small-business suppliers”.

 A solution for late payment

Dr Emerson has produced a thoughtful road map to get this ambition back on track, recommending sweeping changes to the Register to better capture the information needed to shine a spotlight on the payment performance of big business.

While there are a minority of big businesses that do the right thing and pay their small business customers quickly, there are others who deliberately use small businesses as a cheap source of capital.

It is a challenging time when a lot of small businesses are trying to weigh up the terms on which they engage with their big business customers. Many have to price in the cost of having to fund that delay in getting paid. And that’s a working capital imposition.

And in some cases, sadly, too many of them feel powerless to change the behaviour of their big business customers and suffer because of it. The reality is it is often not an option for a small and family business to say they will take their business elsewhere.

As Dr Emerson noted: “Large businesses that do not pay their small-business suppliers quickly are using their market power to obtain a cashflow advantage over small-business suppliers, regarding them as a cheap source of finance.”

Time to name and shame late payers

One of the key recommendations by Dr Emerson is to “foster a culture of prompt payment” through an explicit responsibility to “publicise the worst and best payers”.

In other words, big business needs to understand its reputation is on the line. Dr Emerson suggested an agency like ASBFEO should have a role in saying who is doing a good job and who’s not.

We support this. Let’s name and proclaim the good ones and let’s name and shame those that are letting the economy down and their small business suppliers.

Big businesses should do the right thing to pay their small business customers and suppliers in a timely way, just like they’re expected to pay their tax and their workforce properly.

It was interesting to note that some big businesses told Dr Emerson’s review they wanted to be able to compare their performance against others.

As the only organisation that has dedicated time and resources to analyse and communicate the economy-wide performance of big business, we have championed a “good business pays” campaign approach modelled on and informed by the UK experience.

We are ideally placed to bring into operation a “name, proclaim and shame” scheme that drives better payment performance in support of a more effective and reformed Register.

Celebrating those big businesses that do the right thing will recognise their timely payment performance and put pressure on those with poor payment records. Too many big businesses still make small businesses wait an astounding 120 days or more to be paid.

We also support other recommendations in the review to better protect the rights of small businesses regarding unfair trading practices and unfair contract terms, facilitating the inclusion of a dedicated small business channel into the Australian Government’s proposed designated complaints function and increasing the adoption of eInvoicing.

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https://www.kochiesbusinessbuilders.com.au/late-payments-are-costing-you-more/