WRF, VTA and ASBFEO see huge value to move in favour of suppliers
Rio Tinto’s pledge to ensure small business suppliers in Australia are paid within 20 days has been met with applause, including from trucking.
The mining behemoth says the move applies to suppliers with annual turnover up to $10 million, reflects Rio Tinto’s recognition of the importance of ensuring smaller suppliers, whom are often local to its Australian operations, are paid in a timely manner.
“Small businesses are often the lifeblood of the communities in which we operate and being paid quickly is important for their cash flows,” Rio Tinto chief commercial officer Simon Trott says.
“That is why we are shortening our payment terms to less than three weeks in order to further strengthen our partnership with smaller Australian suppliers that are a vital part of Rio’s supply chain.
“As a result of the new policy, around 90 per cent of Rio Tinto’s Australian business suppliers will be paid within 20 days.
The new policy expands Rio Tinto’s definition of small suppliers from being those who supply up to $1 million of goods and services to also include businesses with annual turnover of up to $10 million.
The new payment terms, and ongoing work to simplify and systemise our procurement processes, reflect a commitment to improve our partnership with suppliers.
The Western Roads Federation (WRF) gives the move a strong thumbs-up.
“Good start, for far too long small business and especially transport companies have been effectively acting as a bank to major corporations,” WRF CEO Cam Dumesny says.
“Slow payments basically meant the road transport industry was providing a line of credit to the mining industry.
“Cashflow is critical to having a viable road transport industry.
“Slow payments was one of the key reasons we helped lead the national push for a Senate Inquiry into the road transport industry.”
The Victorian Transport Association (VTA) amplifies sentiment the point.
“Delinquent and delayed payments are one of the greatest risks for transport operators, especially small and medium sized players that don’t have the capacity to withstand serial blow-outs in payment terms from their customers,” VTA CEO Peter Anderson says.
“It’s encouraging that companies like Rio Tinto are taking a leadership position when it comes to committing to reasonable payment terms and validates the need for this being a key term of reference in the Senate Minimum Standards Inquiry into the Road Transport Industry.”
The Australian Trucking Association (ATA) continues to push the issue with the federal government, calling for reforms to tackle late payment practices
Read the ATA’s call to federal ministers on the issue, here
Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell sees the policy as excellent news for small businesses that trade with Rio Tinto.
“Rio Tinto is showing corporate leadership by changing its payment terms to within 20 days of receipt of invoice, and we are encouraging other big businesses to do the same,” Carnell says.
“Cash flow is always king for small businesses and we know that by paying small businesses on time, the whole economy benefits.”
Her intervention comes as she releases recommendations from her office’s Supply Chain Finance Review, the recommendation of which, calling for fair payment terms and controls on supply chain financing, are endorsed by the ATA.
“We welcome Kate Carnell’s finding that too many big businesses are unfairly extending their payment terms and then offering supply chain financing – at a price – to their small business suppliers,” ATA Chair Geoff Crouch said.
“Reverse factoring does not treat hardworking trucking businesses fairly. It’s even more unfair when supply chain finance providers use the data they gather to increase their fees when small businesses need cashflow the most, and are therefore the most vulnerable.
“This has to stop. Instead, we should ensure that small businesses are paid in full and in a timely manner,” he said.
The ATA has long advocated for fairer payment terms for trucking businesses, who are often vulnerable to adverse changes in their payment terms and often have little capacity to negotiate them with large customers.
“We’re calling on government to mandate fair payment terms for small businesses. Small and family businesses incur more of their costs like wages, maintenance and insurance before they can even bill customers.”
Meanwhile, Telstra follows Rio to 20-day payment terms for any supplier with invoices of up to $2 million annually after pledging 30-day terms in 2017.
“Our new methodology for paying invoices within 20 days captures more businesses than ever, and we encourage governments and the Small Business Ombudsman to create a new standard, consistent definition of small business to ensure everyone is playing by the same rules,” Telstra CFO Vicki Brady says.
But the sentiment against late payments and the practice of ‘reverse factoring’ has some way to go, with construction giant CIMIC said, in an Australian Financial Review report, to be resistant to such a move and defending its form of reverse factoring.