A surge in big businesses using the coronavirus outbreak to delay payments to smaller suppliers by up to six months has prompted Small Business Ombudsman Kate Carnell to formally recommend the Morrison government legislate 30-day payment times.
Ms Carnell had been reluctant to recommend new laws, saying no business wanted more red tape, but said a spike in the number of companies “using the COVID-19 crisis as an excuse for poor payment times” gave her no choice.
Myer, David Jones, Carlton & United Breweries, CIMIC, Just Group and Sussan have been singled out for having payment times that are “damaging” small businesses, in Ms Carnell’s review into supply chain finance arrangements, which The Australian has seen exclusively.
The review comes four months after The Australian revealed that Rio Tinto and Telstra had partnered with fintech Taulia — a company registered in the low-tax US state of Delaware — to unleash a scheme that involved suppliers discounting their invoices or paying a fee in exchange for prompt payment. Telstra and Rio have since dumped their respective schemes.
Ms Carnell said the payment practices of companies that engaged in such supplier payday lending schemes were at odds with their well-publicised philanthropy, with some making their smaller suppliers wait four or even six months for payment.
She said delaying payments was unacceptable and hurting small businesses, particularly during the COVID-19 pandemic, which has forced many to close while others would struggle to survive as they faced an unprecedented cash flow crunch.
“It is always disappointing when some of Australia’s most trusted brands such as Myer and David Jones offer payment terms that require a settlement discount to be paid by their small suppliers, on top of payment terms that, in the case of Myer, can be as late as four months following the end of the month in which the goods were delivered,” Ms Carnell said.
“It is equally disappointing to see retail groups owned by prominent Australians such as the Just Group, or the Sussan Group, increase their payment times to as much as six months during this time of crisis. While these Australians are looked up to in many ways for their philanthropy and employment of Australians, their behaviour towards small business operators leaves much to be desired.”
Ms Carnell said listed construction giant CIMIC, which partnered with global financier Greensill to offer a supply chain financing scheme in September last year after it extended payment times to 65 days, was harming the national economy.
She criticised Carlton & United Breweries’ campaign to support local pubs during the coronavirus outbreak, saying it was contrary to their standard 120-day payment terms for their smaller suppliers.
CIMIC and CUB’s payment terms exceed the Business Council of Australia’s voluntary supplier payment code, which compels signatories to pay their small business suppliers within 30 days.
“Companies such as CIMIC, which are responsible for building much of this country, are in many ways working to undermine our strong foundations by extending payment terms to their small suppliers,” Ms Carnell said.
“And when brewers such as Carlton United Breweries claim to support small businesses through this crisis by offering a ‘buy one get one free’ beer promotion, it is easy to point to their track record of seriously impacting small business suppliers with their poor payment practices,” she added.
Ms Carnell said legislation forcing big businesses to pay their smaller suppliers within 30 days was the only way to drive “meaningful cultural change in business payment performance”.
She said the legislation was also necessary after she found the BCA’s supplier payment code “ineffective”, since it had no compliance or audit processes.
“If Australia were to go down this path, it would not be alone. Just recently, legislation was tabled in the UK that stipulates a uniform 30-day statutory limit for payment of invoices and provides for enforcement of financial penalties for late payments,” she said.
“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.”
About half of all invoices small businesses issue to large businesses are paid late, totalling $115bn in delayed earnings per year, according to business finance specialist Scottish Pacific.
The federal government plans to introduce legislation in September next year requiring businesses seeking commonwealth contracts to pay their suppliers within the government’s own terms of 20 days.
Key Senate crossbencher Rex Patrick is seeking to fast-track the introduction of those laws, citing the severe cash-flow pressure many small businesses are facing.
Finance Minister Mathias Cormann said last week “further consultation with government agencies and the private sector” was needed to strike a balance “between policy effectiveness and regulatory burden”.
But opposition employment and industry spokesman Brendan O’Connor said the government should implement Ms Carnell’s recommendations given the coronavirus-fuelled economic crisis.
“Labor has been pursuing this issue and talking to regulators about how to stop the unconscionable conduct that is reverse factoring coupled with long payment times,” Mr O’Connor said.
“For more than six years, this government has failed to act on improving payment times for small businesses and the longer this goes on, the worse it will be.”