We must level playing field for small businesses

Kiwis take issue when the big guy tries to push around the little guy. Maybe it’s because of our size or our relative place in the world, but whatever it is we have a healthy appetite for the underdog. This extends to our business dealings.

We are a land of small businesses. We admire them. We understand the value in building an enterprise that employs people and contributes to a community.

Small businesses are the backbone of the road-transport sector and many have been suffering through large corporates using the universal deferred payment (UDP) practice to withhold invoice payments up to three months after the due dates. This has wreaked havoc on small business cashflow and often forced them to borrow to keep operating.

From an accountancy point of view, UDP saves big businesses money through their using small suppliers and transporters as a cheap source of finance.

The reason some companies get away with UDP is that often there really is only one game in town in the regions.

Recently we heard a small business was told its invoices would not be paid (by a large multinational) until 90 days after due date. The same day another letter from the same multinational advised the business it must settle its accounts payable within seven days!

There have also been reports of some big players being “generous” enough to offer finance to cover their suppliers during the deferred payment period. It doesn’t get much more cynical than that.

It was encouraging last year that Fonterra ceased to use UDP with its suppliers, but our small businesses need protection so that we can stamp out the practice entirely.

So when the Government released a discussion document, near Christmas, considering additional legal protections against “unfair” commercial practices including UDP, it was disappointing it didn’t receive greater public attention.

The Road Transport Forum has pushed for a legislative protection for small businesses from UDP for a while. Our solution, backed by robust legal opinion, is for a simple amendment to the Fair Trading Act, which would extend to small businesses the protections consumers enjoy from unfair contract terms. For standard form contracts, companies could not include terms that would cause a significant imbalance in the parties’ rights and obligations arising under the contract, that were not reasonably necessary, and would cause detriment if enforced.

I am glad our advocacy has paid off and ministers Stuart Nash and Kris Faafoi have included this option in the public consultation. It is, however, concerning that another option being floated by the Government seeks to incorporate unfair contract terms alongside a much broader approach that would introduce “unconscionable conduct” into law.

Unconscionable conduct applies where courts consider it unfair or “against good conscience” to allow a party to enforce its contractual rights against another deemed to be in a weaker position and which is forced to accept what is on offer. Contracts would not be enforceable if “unconscionable” in a court’s opinion. A minefield most businesses would lack the time or money to be concerned with.

The last thing the Government should want to do is to inadvertently put into law provisions that prove insufficiently robust to achieve a fair outcome or unnecessarily increase corporate litigiousness.

It is not the role of government to protect businesses from every transaction they might ultimately regret. Nor is it its place to stop businesses competing fairly or negotiating the best possible outcome for themselves with customers and suppliers. These key aspects of a robust, competitive business environment must be protected.