Trucking and the Covid-driven payment pandemic


New payment times legislation, while seen as a step in the right direction, is unlikely to go far enough to flatten trucking’s late-pay curve

Trucking and the Covid-driven payment pandemic
The issue of late payment times was exacerbated by the impacts of Covid-19

 

Covid-19 has served to worsen trucking’s experience with late payment times and few industry proponents see new government measures delivering tangible relief.

It comes as concerns on the matter were vindicated recently with the circulation of a report highlighting the deteriorating trend in recent months.

Credit reporting agency CreditorWatch laid bare the stark rise of the impact in the transport, postal and warehousing (TPW) industry.

The sector’s late-payment average of 15 days in August 2019 was eclipsed a year later, jumping to 90 days in August 2020 – a 500 per cent increase in the midst of the Covid-19 pandemic.

While accommodation and food services peaked at around 25 days late last year, with TPW sitting alongside construction and administrative and support services in the mid-teens, TPW now sits with the latter as well above any other sector.


How news of the Creditorwatch report broke, here


While some industry averages showed minor improvement up to August, when compared to 2019, "the majority have taken a beating", CreditorWatch comments, noting that "for all industries except mining, the pressure on cash flow and their ability to pay bills has skyrocketed year-on-year".

The agency highlights the recent data as painting a stark picture of Australia’s economic landscape.

"With payment times staying stubbornly high, it’s clear that the SME [small- and medium-sized enterprise] sector is struggling to generate cash flow outside of government support, indicating that there is a mountain of trouble behind the curtain of stability," CreditorWatch chief economist Harley Dale says.

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One NSW operator, on the condition of anonymity, describes their experience to ATN.

"It’s been much of a pain because you fall back on accounts payable and, as I am the type that goes out of the way to ensure staff has food on the table, I get forced to pay out of my personal funds to ensure everyone receives money in a
timely manner.

"It gets very stressful as all you can do is request for client money to be deposited, but only receive a ‘sure, we will pay’ response.

"You have no actual understanding of when you will receive the funds – maybe seven, 14 or 20 days late.

"It’s quite disappointing that you work so hard and the customer fails to respect your dedication."

For the Australian Trucking Association (ATA), instances like these are all too common.

With much of industry’s expenses required upfront, operators don’t have the luxury of extending terms like many clients higher up the food chain.

"The trucking industry is an industry of small and family businesses, working on tight margins," an ATA spokesperson tells ATN.

"Most of the costs incurred by trucking businesses must be met before they can bill their customers.

"These include wages or personal living costs, fuel, tyres, insurance, finance costs, registration and maintenance.

"In contrast, some large customer companies set their payment practices on a global basis.

"This means some trucking companies face very long payment times from some customers, and others have adverse changes in payment times.

"For many trucking businesses, the only real option is to accept the extended payment time or not accept the transport job, unless the customer is prepared to accept different payment terms."

The NSW operator notes their company was forced to implement a limitation policy in response, where, if a customer fails to pay, it begins to phase out its service volume to that client to limit future risk of loss.

"This is so we can dedicate our service for customers who pay in a timely manner."

The National Road Transport Association (NatRoad) says its members were struggling with payment problems long before the pandemic. 

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

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Mining giant Rio Tinto was lauded for its recent pledge to pay small business suppliers within 20 days, though its commitment currently serves as an outlier.

"The Small Business Ombudsman reported earlier this year that late payments by large businesses to small businesses account for 53 per cent of all invoices," Clark continues.

"That’s $115 billion paid late to small businesses – equivalent to $7 billion of working capital to Australian small businesses every year.

"Many are also using Covid-19 as an excuse to push payment times out even further and this should be called out as unfair and legislation introduced to curb these practices."

PAY LAW

Long-term consternation from a broad spectrum of industries eventually forced the government’s hand. This conjured up the Payment Times Reporting Scheme.

The Payment Times Reporting Act 2020 passed in October and will require large businesses to report on their small business payment terms and times from this year.

The scheme will start on January 1, 2021, with a criteria that includes:
• large businesses and certain government enterprises with a total annual income of over $100 million

• controlling corporations where the combined total annual income for all members is more than $100 million

• businesses with a total annual income of at least $10 million that are part of a group headed by a controlling corporation with a collective income greater than $100 million.

The legislation is estimated to cover around 3,000 businesses, including foreign companies that operate in Australia, as well as certain government enterprises.

Eligible entities will be made to submit payment times reports twice a year, which will be published on the public Payment Times Register.

The first reports will be available on the register in July 2021.

A Payment Times Reporting Regulator has been established to administer the scheme, publish reports on the register, and monitor and enforce compliance with the Act and associated rules.

The scheme comes with a 12-month transition period, ending January 2022, before compliance and enforcement measures apply.

Minister for Employment, Skills, Small and Family Business Michaelia Cash claimed the scheme would strike the right balance of providing transparency for small businesses without creating a "counterproductive regulatory burden" for large business.

"With the impact of Covid-19, it is even more important that large businesses, as stewards of their supply chains, pay their small business suppliers the money they are owed promptly," Cash says.

The reception from small business and trucking groups has been lukewarm.

Increased transparency is seen as a step in the right direction but, as the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell, picture below, summarises, "it won’t solve the problem of late payment times on its own".

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The intervention is welcomed but inadequate, Clark adds.

"There needs to be legislation targeted at the unfair practice of paying beyond 30 days," he says. 

"With the pressures placed on small business by Covid-19, the additional unfairness of invoice payments beyond 30 days should be stopped."

The scheme is set to be reviewed by mid-2023, examining if payment trends have improved, whether more stringent measures like mandating maximum payment periods would be more effective, how mandated payment periods could best be implemented, and the impact of sector or industry specific differences.

The consensus is that a 2023 review simply feels too far away and the issue is likely to persist until then.

FAILSAFE MECHANISM

The federal Opposition’s solution, backed by the ASBFEO and ATA but ultimately knocked on the head, was to attach a ‘failsafe mechanism’ to the legislation.

"Labor’s proposed changes to the Payment Times Reporting Bill 2020 would’ve introduced a failsafe mechanism that would have seen big businesses face fines if the reporting scheme failed to broadly reduce payment times," shadow minister for infrastructure, transport & regional development Catherine King, pictured below, says.

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"We were very disappointed when the Morrison government voted down these changes, but we remain committed to changing the industry for the better.

"Ensuring trucking businesses are paid on time has never been more important as the industry faces a pandemic and a recession.

"Any time you talk to a truck driver, one of the first issues they raise is that they are too often left waiting for payments.

"Trucking isn’t big business; operators work on tight margins and simply don’t have the cash flow to wait endlessly for money they are owed.

"Labor is committed to ensuring improvements are made, whether that be through increased monitoring and transparency or through penalties on those businesses who delay payments.

"We’ll continue pushing for the Morrison government to come on board."

The ATA is particularly vocal in agreement and made its sentiments known to a Senate committee on the matter.

"The ATA believes stronger action to achieve fair payment terms is needed.

"We supported the Labor Party proposal to introduce penalties for big business who continue to pay their bills late [such as] legislation to ban payment times longer than 30 days, unless a longer time is agreed and is not grossly unfair.

"This ban should also provide creditors with the immediate right to claim interest and recovery costs, and impose penalties for serious non-compliance by big business."

CO-OPERATION CALL

In some instances, clear dialogue leading to a mutual understanding between supplier and client can nip a potential impasse in the bud, a Melbourne operator tells ATN.

Being in the thick of both lockdowns in Melbourne, it saw success by moving early to ensure its business and clients were on the same page from the outset.

"When things first kicked off back in March, we made personal contact with every single one of our customers to say: ‘Hey, sorry to be hard arses when you’ve been such great payers but given the uncertainty and our increased exposure being the boutique size we are, we just needed to let you know we cannot have any payments so much as a day late without advanced notice or we may have to pull all our vehicles because we just can’t afford to take the risk.’

"Despite what to some may have sounded a threat – not at all our intention – this message was really well received by our customers who, for the most part, are significantly larger businesses than we are, with much larger war chests to play with.

"They understood the position we were in and have been very supportive and diligent in ensuring that late payment creep hasn’t occurred."

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That approach may not work for everybody and, in the meantime, Carnell urges big business to heed the intention of the new legislation early.

"These new laws represent important progress at a time when Australian small businesses are hurting and need to be paid on time to survive," Carnell says.

"I am strongly encouraging the 3,000 businesses this legislation applies to, to do the right thing and comply with the payment time reporting requirements as soon as possible.

"Big businesses should act quickly to be up front and honest about the time it takes to pay their small business suppliers.

"Delaying compliance until penalties apply would be unacceptable."

SUPPLY CHAIN FINANCING

Exchanging goods and services for a fee, preferably paid within 30 days, seems a straightforward exercise.

However, for the sake of big business cashflow, invoice payment has become increasingly calculated and, in some cases, pernicious.

For example, in debt factoring, suppliers can sell a portion of the invoice before the due date to a bank or financier, known as the ‘factor’, which later collects the payment from the client.

More recently, big companies are offering supply chain finance, also called reverse factoring, where a client intentionally extends payment terms and then proposes a discount to a supplier if it wants to be paid earlier.

"Supply chain finance is a legitimate and effective tool that can be used to free-up cash flow for small and family businesses," Carnell says after a review into the practice earlier in the year.

"However, our review has found that too many big businesses have extended payment times and then offered supply chain finance.

"This practice severely impacts small business suppliers and is totally unacceptable.

"The fact is that all businesses, regardless of their size, should be paid in 30 days and supply chain finance should be available to those small businesses that want to be paid faster."

On the matter, the ATA says agrees with the Ombudsman and advises trucking businesses to seek independent financial advice for their circumstances. 

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