Govt looks to improve payments culture

Fonterra’s policy of delaying payments to trade suppliers by up to three months is back under the gun as pressure builds on both sides of the Tasman for businesses to pay their bills faster.

Small Business Minister Stuart Nash said it was disappointing Fonterra was not reviewing the tougher payment terms it introduced two years ago.

Nash said he had asked officials to closely watch the results of an Australian government drive to speed up the payment of invoices and create a ‘‘new payment culture’’ in Australia.

‘‘If it genuinely looks like [the Australian government] is changing the payment culture over there, then I will put a paper to my Cabinet colleagues to make some recommendations ... to see if we can replicate what they are doing,’’ he said.

Fonterra drew the ire of the business community – as well as current Prime Minister Jacinda Ardern – in 2016 after it wrote to about 3600 trade suppliers, telling them they would have to wait until 61 days after the end of the month in which they had sent invoices to be paid. The policy does not affect farmers who supply milk to the company. Its previous practice had been to pay companies on the 20th of the month following the receipt of invoices.

Fonterra justified the move by pointing out that its farmer shareholders were facing tough times as a result of falling global dairy prices, which have since recovered from a low of $3.90 per kilo of milk solids to reach $6.40.

Despite financial stability returning to the dairy industry, spokeswoman Louise Kattera confirmed Fonterra was not looking to review its standard payment terms. It had been flexible negotiating payment terms with smaller suppliers, she said.

Kattera said it was relevant that six months could pass between Fonterra starting to manufacture a

"I would have thought a company like Fonterra with massive cash flows could have set the scene on this."

Small Business Minister Stuart Nash

product and it being paid itself. Ardern – then Labour’s spokeswoman for small business – criticised Fonterra’s payment policy when it was introduced, also chastising the Ministry of Business, Innovation and Employment for paying a quarter of its invoices late, and called for ‘‘government leadership’’.

Businesses in Australia appear to be making progress encouraging better practices. Australian Prime Minister Malcolm Turnbull announced in November that federal government agencies would pay invoices for contracts worth up to A$1 million (NZ$1.1m) within 20 calendar days compared to the previous 30. It would set an example and establish a new payment culture, he said.

Australian businesses including retailers Coles and Woolworths and accounting software firm MYOB have also agreed to pay suppliers faster.

Carolyn Luey, general manager of accounting software firm MYOB New Zealand, said there was strong momentum in Australia for changes which she hadn’t yet seen mirrored in New Zealand.

But Nash’s comments suggest that may only be a matter of time.

‘‘I would have thought a company like Fonterra with massive cash flows could have set the scene on this,’’ he said.

A survey by MYOB found almost half of New Zealand small businesses had been placed under some pressure by late payments, with one in 20 describing that pressure as ‘‘extreme’’.

While individual business can gain from paying supplers later, Luey said the overall effect on the economy of slower payments was negative.

‘‘We would love people to sign up to a prompt payments protocol because we know the impact it can have on small and medium-sized businesses. If you have got confidence around your cashflow, then you are happy to invest.’’

Luey did not back a mandatory code as has been suggested by Australia’s Ombudsman, but said the Government could be an advocate for a voluntary industry code.

‘‘It would be simpler for everyone. They are the ones who can lobby for things and have people stand up and listen.’’