Payment time review aims to shine light on disputes cause
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, has announced a review of business payment times.
The probe on an issue that has been high on her agenda long term, aims to “measure the effects of late or extended payment practices on the cash flow of small businesses and family enterprises in Australia”.
The move follows a written request by federal small and family business, skills and vocational education minister Michaelia Cash for advice on the effect these payment practices have.
“In our 2017 Payment Times and Practices Inquiry, we found Australian payment times were the worst in the world, with invoices paid on average 26.4 days late,” Carnell says in a statement.
“We identified a growing trend for large Australian and multinational companies to delay and extend payments from 30 days to 45, 60, 90 or 120 days.
“More recent research involving 1,600 businesses identified the biggest cause of business disputes is payments (44 per cent), with either the full amount not being paid (26 per cent) or not being paid on time (18 per cent).
“Partial and late payments, seeking discounts to pay in 30 days, offering loans to cover extended terms, all place stress on the cash flow of small businesses.
“It forces the business to find ways to finance the short fall in their working capital.”
Read the ASBFEO take on payment times given to Parliament in August, here
ASBFEO has a short survey for small and family businesses to fill out with a view to it gaining a better idea of the state-of-play on payment times and practices in Australia.
The survey questions include:
- what payment times are in your contract?
- do you have to provide a discount if you want to be paid in 30 days or less?
- are you paid later than the contract states?
“We have also written to large corporations requesting a copy of their payment terms and conditions to suppliers,” Carnell says.
“Extended payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance.
“Too many small and family businesses are being crippled by slow payments and the national economy suffers as a result.
“When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business. Poor cash flow is the primary reason for insolvency in Australia.”
The Civil Contractors Federation (CCF) is and earlier positive responder to the announcement.
“The Federal Government has recently released a Report into Australia’s Security of Payment Laws aimed at addressing delayed and disputed payments for small businesses involved in subcontracting in the building and construction industry,” CCF CEO Chris Melham says.
“I look forward to the results of the report being incorporated into the ‘Payment Time Review’ being conducted by Kate Carnell.
“Delayed and disputed payments to small contractors is a significant problem in the civil construction sector with the Murray report making 86 recommendations aimed at enhancing protections to ensure subcontractors get paid on time for work they have done, regardless of which state or territory they operate in.”
The CCF points out that six major issues were identified with the current state-based security of payment legislative regimes that lead to delayed and disputed payments that include:
- with the exception of Queensland, none of the existing state and territory legislations provide any effective ‘security’ of payment where a party higher up the contractual chain becomes insolvent
- the legislative regimes are unduly complex, and this has discouraged their usage and caused confusion
- there are questions around the process of appointing adjudicators; the adequacy of qualifications, training and grading of adjudicators; and the variable quality of adjudication decisions
- there is an imbalance of bargaining power within the contractual chain and the practice of passing on contractual risks has resulted in the imposition of unfair contract terms that operate to prevent payment to the party that has carried out construction work
- there are suggestions that acts of intimidation and retributive conduct by head contractors discourage subcontractors from pursuing their entitlements
- late payment continues to be a major issue for the construction industry.
Details can be found on the ASBFEO website here.