Ombudsman’s office plans to launch inquiry to explore options such as compulsory codes for payment terms
Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell says a mandatory 30-day payment approach will benefit the transport industry, particularly small business operators.
The Ombudsman’s office is planning to launch a new inquiry on payment time issues that reviews current payment practices and their effects, and explores options to improve the system, including adding non-voluntary or compulsory code of payment terms in contracts.
Carnell says many European countries, such as the UK, Germany and France, have legislation or compulsory code of payment time in place that ensures better cash flow.
“The issue of payment time is real. The payment time of some of the big supermarkets, some of the big transport companies and certainly the mining companies is simply unacceptable,” Carnell says.
Carnell says Australia lags behind many countries when it comes to payment times and even though recent figures indicate that the average payment turnaround cycle is improving, albeit slightly, the result is not indicative of workings across each individual sector.
“What’s happening according to the stats we have got is that bigger companies are getting slower and SMEs [small to medium enterprises] are paying quicker.
“So, on an average payment times are coming down a bit that’s because there are more SMEs than there are big companies.
“We have seen in the last couple of days announcements from Kellogg’s and Fontera that they will increase the payment times to 120 days, but small businesses can’t operate on 120 days, though some [small transport operators] might say that that’s what they operate on now, but those sort of payment times just make cash flow absolutely impossible.
“Ninety per cent of small businesses that go broke in Australia go broke not because they have crummy businesses but because they have crummy cash flow.
“Today, in Australia, small businesses are owed $26 billion on invoices that are out there and most of those invoices are past due date.
The Ombudsman says in terms of global ranking on payment times Australia ranks towards the bottom of the list, way below countries like the UK, Germany, Canada and the US, which, in her opinion, is due to the fact that bigger companies often use small businesses as banks to improve their bottom lines and cash flow.
“There are big companies that have a significant market power in Australia and so they are in a position where you can’t afford not to deal with them.
“It’s very hard to say no to dealing with some of the big companies simply because they are bad payers or they are quite open that they’re not going to pay you for three months.”
The Ombudsman says that in many industries the three-month period sometimes increases by a few weeks because of the technicalities in the way the payment clause is drafted in a contract.
Carnell says there are a range of options available that can help Australia improve the system.
Recommendation for 30-day pay rule in trucking
The Ombudsman will urge the government to explore the possibility of a mandatory 30-day payment rule for all drivers in the trucking industry.
The Ombudsman office has included this suggestion in its report following a formal inquiry on the effects of the now-defunct Road Safety Remuneration Tribunal (RSRT’s) Contractor Driver Minimum Payment Road Safety Remuneration Order (RSRO) on small transport operators.
While the initial findings of the inquiry highlight the discriminatory nature of the minimum rates order and RSRT’s mishandling of the issue, the Ombudsman sees merit in the tribunal’s compulsory 30-day payment rule.
“Payment times are a problem in the industry. One of the good things about the tribunal’s determination was the 30-day payment approach that was recommended,” Carnell says.
“We got evidence of quite long times for smaller companies to be paid by some of the bigger players in road transport so we’ve suggested that there needs to be a very close look at security of payments or 30-day maximum payment rules where it is appropriate.”
One of the first things RSRT had stipulated was mandatory 30-day payment turnaround time for contractor drivers.
The first order, which came into effect in May 2014, dictated that companies must pay owners-drivers any undisputed amount within 30 days of receiving an invoice.
Former RSRT president Jennifer Acton had earlier stated that delay in payments exerts financial pressure on drivers, which in turn, leads them to resort to unsafe driving practices such as speeding, reducing maintenance time, ignoring fatigue regulations to exceed legal working hours and driving under the influence of drugs to combat fatigue to make ends meet.
Carnell agrees with this argument and says it is important all truck drivers, not just employee drivers, be paid within 30 days of submitting their invoice.
The report is currently in its final stages and will be presented to small business minister Kelly O’Dwyer in the coming weeks.