Easing cash flow pain for business

Ranking big business payments could help small operations, writes Wendy Askew

AS a former bank manager with numerous small business clients, many with overdraft accounts, I have seen the often disastrous impact of businesses not being paid on time. I shared both the celebrations and challenges of business owners, with cash flow frequently cited as a contributing factor to their success or failure.

The Australian government recognises cash flow is a key issue for small businesses, which is why I’m pleased the Payment Times Reporting Bill was passed earlier this month. Small businesses have staff wages, rent and other overheads to pay, all the while waiting to be paid themselves. This makes them vulnerable.

This year we have all seen many small business owners in Tasmania overhaul their operations to adapt to social distancing restrictions to limit the spread of COVID-19.

One simple step in economic recovery is paying them on time. Small businesses deserve to be paid for their products and services in a timely manner. Long payment times have a knockon effect that can impact staff, suppliers and the owner’s family. Time spent chasing overdue invoices is time away from the business. Often these business owners are also the accountant, marketer, human resources manager and administrator. The buck stops with them, not a hierarchy of departments that leads to a chief executive.

A 2019 study by AlphaBeta Advisors found $115bn worth of payments from big businesses to their smaller counterparts were paid late. AlphaBeta found that eradicating late payments would generate a $2.54bn net economic benefit to Australia over 10 years.

More than one third of small business invoices are paid after 30 days, with these invoices averaging 63 days before payment. If all large businesses in Australia paid small businesses within 30 days, $7bn in working capital would be transferred from large to small businesses. Just a simple action on the part of big business, but the net benefit to the Australian economy would be $313m per year.

To show we’re willing to put our money where our mouth is, the Australian government is already paying its bills faster. Since July last year, commonwealth agencies have paid invoices for contracts of up to $1m within 20 calendar days, or they have paid interest on late payments. This captures about 95 per cent of commonwealth procurement contracts.

Under this Bill, large businesses are required to submit a Payment Times Report covering the shortest and longest standard payment periods offered; the proportion of small business invoices paid in less than 21 days, between 21 and 30 days, 31 and 60 days and more than 60 days; along with the proportion of small business suppliers.

Small businesses will be able to make more informed decisions about whether they want to establish a business relationship with these customers. And greater transparency around payment times creates cultural change in improved payment performance.

The Australian government is acting decisively and responsibly to support small businesses. This Bill provides welcome relief when coronavirus has thrown challenge after challenge at small business.

Wendy Askew is a Liberal senator for Tasmania.