The introduction of legislation which sets a maximum payment time for business to business transactions is a key recommendation made in the ASBFEO’s final report of the Payment Time and Practices Inquiry. Following a surge in big business using the coronavirus crisis to delay payments to small business, the Small Business Ombudsman is pushing to legislate 30-day payment times.
This follows similar legislation tabled in the UK that stipulates a 30-day statutory limit for payment of invoices and provides for enforcement of financial penalties for late payments. UK’s Credit Protection Association reports that SMEs across the country are chasing an estimated AU$90 billion in late payments. The average business hunts five outstanding invoices at any one time, wasting an hour and a half every day.
Just like their UK counterparts, Australian small business operators are feeling the financial pressure of late payments. According to Xero report Paying the Price, those who endure long wait times perform worse economically than their counterparts. The report found that if large firms paid Australian small and medium business on time, it would relieve financing pressure that would help them invest, hire and grow, delivering a net economic benefit to the economy of $2.54 billion over 10 years.
Getting a head start on late payers
Expected to help strengthen the protections for small business, the Payment Times Reporting Bill 2020 is proposed for introduction to Parliament later this year. This new payment framework requires firms with a turnover of more than $100 million to publish information about their payment policies, giving SMEs some choice around who they do business with. Also in the pipeline, plans by the federal government to introduce legislation requiring companies seeking commonwealth contracts to pay their suppliers within the government’s own terms of 20 days.
While progress is being made, the ASBFEO warns that more needs to be done to drive meaningful cultural change in business payment performance across the economy. It’s a sentiment supported by many who have witnessed the devastation thrust on small business by the COVID-19 crisis and the long months waiting for invoice payments when cashflow has all but dried up.
In the meantime, standard credit-reporting practices that monitor credit conduct gives SMEs a way to understand the risks of their customers better. An Equifax SwiftCheck report provides information on a business such as its address, ASIC registration details, payment default history, recorded legal action, director details and business credit score. Continually late invoice and bill payments are included in the report, allowing SMEs to negotiate payment terms and conditions upfront with these higher-risk customers.
Staying informed of the risk profile of customers on an ongoing basis allows SMEs to guard against unfavourable surprises and make informed decisions at every stage of the payment cycle.
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