NatRoad welcomes amendment bill in fight for prompt payments


Looming Victorian law backed as pressure grows for federal action

NatRoad welcomes amendment bill in fight for prompt payments
Warren Clark

 

The National Road Transport Association (NatRoad) welcomes the imminent changes to the Owner Drivers and Forestry Contractors Amendment Bill 2019 which directly impacts on invoicing payment terms for owner drivers.

The Victorian legislative change is effective from May 1 and requires payment of invoices within 30 days of receiving an invoice from contractors where the contractor is an owner driver.

"Cashflow is the single biggest reason for small businesses going under and many large businesses are paying invoices well beyond 30 days," NatRoad CEO Warren Clark says.

"Unfortunately, many are using Covid-19 as an excuse to push payment times out even further."

It is hoped that the changes in Victoria can help reduce the uncertainty and inconsistency of payment times for small transport owner-operators but more needs to be done and changes introduced nationally.

NatRoad notes Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has recommended that the federal government adopt a maximum 30-day payment regime.

"While the federal government has passed its Payment Times Reporting legislation into Parliament, it is unlikely to result in the systemic change because it is not binding," Clark says.

Carnell also notes the behaviour of certain larger enterprises – naming Myer, David Jones, Just Group, Sussan Group, Carlton & United Brewery and CIMIC – when releasing the ASBFEO’s Supply Chain Financing Review final report.

"Large businesses extending or in some cases, suspending payments to small businesses are on notice that this behaviour is unacceptable," Carnell says.

"There’s no denying businesses of all shapes and sizes are enduring extraordinary challenges as a result of the Coronavirus crisis, but small businesses are being hit hardest.

"Many small businesses have been forced to close their doors and a lot may not survive the coming months, even with significant support from the government. That’s why it is more important than ever to ensure small businesses are paid on time."

SME SURVEY

In response to Carnell’s statement, financial services firm Scottish Pacific says research on its behalf from market analysts East & Partners shows small to medium enterprises (SME) are waiting on average waiting 56 days to be paid.

Their range of payment times (debtor days) varied from seven days to an extremely challenging 134 days.


 

Read about major-company payment time pledges, here


Scottish Pacific CEO Peter Langham says while the overall SME average is 56 days, the strain is more marked at the smaller end of the sector, with businesses of $1 million-10 million revenue waiting, on average, 66 debtor days.

Their larger $10 million-20 million revenue counterparts have a more manageable 40-day wait.

With the pandemic occurring after the survey was taken, the impact may be dragging these payment times out even longer.

"Money that could be used to expand revenue and invest in growth is being tied up for too long, as SMEs struggle to be paid within a reasonable timeframe," Langham says.

"This is a significant burden to bear and reinforces the importance of reducing payment times, in particular for SMEs struggling to source new funding or to refinance their existing borrowings.

"There is a great disparity and we see as businesses become larger they get paid more quickly."

On average, the Scottish Pacific research found that SMEs have almost a third of their revenue (29 per cent) tied up in outstanding invoices, with 16 per cent of revenue locked into overdue invoices (outstanding beyond 90 days).

This was consistent for SMEs in the $1 million-10 million and $10 million-20 million revenue ranges.

Given East & Partners calculates the average turnover of survey respondents at $9.8 million, they estimate each SME in the cohort is trying to deal with, on average, $2.82 million in outstanding accounts receivable.

This equates to the Australian SME sector (with $1 million-$20 million revenue) having up to $776 billion annually in outstanding total invoices and prompts the question.

Scottish Pacific asks how much of this multi-billion dollar outstanding income has to be funded outside an SME’s normal working capital?

"Each SME has to manage while having, on average, $1.55 million in invoices that are not just outstanding but overdue – defined as beyond the 90-day mark," Langham says.

"At the extreme, some small businesses are waiting up to four months to be paid and almost one in 10 SMEs can’t state their average debtor days, with some struggling to calculate the figure because invoice payments are too variable to reliably report.

"This payment lag is one of the reasons some of our clients use Scottish Pacific to assist in their sales ledger management, to reduce the number of days invoices remain outstanding."

BCA CODE QUESTION

Like the ASBFEO, NatRoad views the current Business Council of Australia (BCA) voluntary supplier payment code that advises signatories to pay smaller suppliers within 30 days as ineffective, highlighting that it has "no compliance or audit processes".

But the BCA stands it ground in the face of ASBFEO criticism, saying data and analytics firm illion, formerly Dun & Bradstreet, showed late payments across the economy in the September 2019 quarter declined to the "lowest on record"  and that "75 per cent of payments by firms across the economy are made promptly (i.e. on time) – a rise of 3 per cent on the previous year".

However, for NatRoad, the federal adoption of 30-day payment terms is a critical issue, as members struggle through the effects of Covid-19.

NatRoad has been asking the federal government to address this issue for a considerable period. 

It says the best means of assisting industry and all owner-drivers would be for the federal government to introduce a mandated code for the industry under Part IVB of the Competition and Consumer Act, 2010 (Cth) (CCA).

"The Code would regulate payment times, permitting a maximum of 30 days from date of invoice, as well as containing a prohibition on set-offs and pay-when-paid arrangements," the organisation says. 

"These are major and long-standing issues affecting the road transport industry that should be fixed now."

The Review of Supply Chain Financing final report can be found here

 

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