ATA sees payment times reform support in Carnell report

ASBFEO seeks law to mandate maximum time from big businesses to small businesses

ATA sees payment times reform support in Carnell report
Geoff Crouch wants a mandatory code covering payment terms for small trucking businesses


The Australian Trucking Association (ATA) has bolstered  the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO’s) message in its Payment Times and Practices Inquiry - Final Report.

In the report and a public statement, ASBFEO calls on the federal government to legislate a maximum payment time for big businesses to pay their small business suppliers.

"The ATA has been calling for extended payment times to be fixed and now the small business ombudsman has backed the need for the government to act," new ATA chair Geoff Crouch says in response to the ASBFEO report, the ATA having made a detailed submission to its inquiry.

"In the trucking industry, some big business customers are demanding payment terms of up to 120 days.

"The report recommends that industry codes should include best payment practices, including set payment times.

"In the 2016 election campaign, the ATA called for a mandatory code covering payment terms for small trucking businesses and related issues."

The ATA supports the ombudsman’s other recommendations, which would deliver shorter and more certain payment times and practices.

"The government has made valuable reforms for small business – such as the introduction of the small business ombudsman and lower company taxes – but its small business agenda must also include fixing extended payment times," Crouch says.

"The government must act, and introduce shorter payment times for its own procurement, require businesses who sign government contracts to pay their suppliers in line with these shorter payment times, and legislate maximum payment times for business to business transactions."

The key ASBFEO inquiry recommendations are:

  • federal legislation to set a maximum payment time for business-to-business transactions. Terms greater than this can be agreed when it is not grossly unfair
  • the federal government to adopt a 15 business working day limit on payment terms from July 2018
  • federal  legislation for large business to disclose publicly all of their payment terms and performance against those terms
  • the federal government to procure from businesses that have supply chain payment practices equal to or better than government terms.

"Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance," the ASBEFEO, Kate Carnell, says.

"Something must be done. Small business should never have to act as a bank for big business, helping to finance multinational companies.

"This growing trend for extended payment times impacts the economy by slowing down the flow of cash through supply chains, which limits growth of businesses because they have more capital tied up in financing their operations and it raises the costs for businesses financing longer trade credit to their suppliers.

"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."

Carnell welcomes the proposal for a voluntary industry prompt payment code although overseas experience "clearly showed that voluntary measures did not compel all businesses to change their practices on extended payment terms or late payments".

She said although voluntary codes had been shown not to be entirely effective, minimum best practice would require a code to define a maximum payment time and contain a mechanism to automatically apply late payment penalties either through interest measures of other forms of compensation.

Also, minimum best practice would require regular, independent and public reporting to determine its effectiveness.

The Payment Times and Practices Final Report also recommends that the Australian Government maximise its role to set the standard on faster payment times to suppliers.

The ASBFEO recommended that the Australian Government adopt a payment term limit of 15 business working days by July 2018 to set an example for faster payments to suppliers.

Carnell says the standard government payment term was 30 days and a study in the United States had demonstrated that faster payments through supply chains had increased annual payroll by $6 billion and created more than 75,000 additional jobs over three years.

She adds that, despite government prompt payment policies, some government entities paid their suppliers late and many suppliers did not seek a late payment penalty for fear of antagonising the government entity.

The ATA notes the inquiry into payment times and practices was the first self-initiated probe conducted by the ASBFEO.

"The ability of the small business ombudsman to self-initiate an inquiry is critical to giving small business a louder voice," Crouch says.

"The ATA’s submission to the review of the ombudsman endorsed its ability to self-initiate inquiries and supports its approach to consulting with small business.

"It is also important that recipient created tax invoices [RCTI] are not used to extend payment times.

"In our submission to the inquiry and also our submission to the review of the Victorian Owner Drivers and Forestry Contractors Act, the ATA recommended against big businesses being able to use RCTIs to artificially extend their payment terms by delaying the issue of those invoices."

The ATA underlines that trucking industry consists almost entirely of small businesses, with 98 per cent of road freight transport businesses having 19 employees or fewer.

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