Telstra risks losing hundreds of millions in government contracts unless it pays its suppliers within 20 days, under a government push aimed at shutting out companies that don’t promptly pay their bills.
The Weekend Australian can reveal the federal government is planning to introduce a policy that Prime Minister Scott Morrison flagged in late 2018 to curb lengthy delays in payments to smaller and medium-sized businesses and strengthen the economy.
The government’s move puts Telstra under further pressure to reverse its decision to extend payment terms to 62 days. The company has said it is reviewing its payment terms after it dumped its supplier payday lending scheme, following mounting community and supplier outrage.
The backflip came a day after Rio Tinto ditched its so-called “dynamic discounting” scheme, after The Australian revealed the miner was urging its suppliers to take a 2 per cent cut to their bills if they wanted to be paid earlier than 30 days in a move that would have delivered up to $200m to the cashed-up mining giant.
“Decisions taken by Telstra and Rio Tinto to improve their payment terms with suppliers, many of them small and family businesses, better align with the Morrison government’s impending legislation and community expectation,” Small Business Minister Michaelia Cash said. “Slow or deliberately delayed payment times have a significant impact on small business cash flow and viability.”
But the government is unlikely to introduce the changes to payment terms until late 2021. Suppliers say they need timely payment to improve their cash flow, with late payments translating to a $7bn drag on the national economy each year, according to the federal Small Business Ombudsman.
The government is “progressing the development of the payment times procurement connected policy and … consulting with key commonwealth agencies on high level policy parameters,” internal documents seen by The Weekend Australian state.
“We are aiming to strike the right balance between policy effectiveness without creating unnecessary additional regulatory burden for commonwealth agencies, large and small businesses.
“As the policy has not been implemented to date (implementation is likely to take place in late 2021). There have been no audits on the policy compliance.”
The government plans to introduce the separate payment times reporting framework legislation this autumn. Once implemented, the scheme will require Australian businesses with an annual turnover of $100m or more to report how and when they pay their small business suppliers.
“This will be a landmark reform which will encourage fairer and faster payment times for small businesses,” Senator Cash said.
A spokesman added: “The Morrison government will work to ensure those doing business with the federal government will meet our 20-day payment terms for their small business suppliers”.
However, Opposition employment and industry spokesman Brendan O’Connor called for a firmer time frame.
“Making small businesses pay a fee to be paid on time is unconscionable, but merely the tip of the iceberg as these dodgy payment plans are risky and contribute to the economic woes we face,” Mr O’Connor said.
“Minister Cash cannot give small businesses any assurance that their 18-month-old 20-day payment times announcement will even be up and running before the next election, let alone do anything to help protect them from unconscionable payment practices.”
Mr Morrison told Australia’s biggest companies in November 2018 that if they wanted to do business with the government they had to adopt the government’s own payment terms of paying their suppliers within 20 days.
Telstra had partnered with Taulia, a company registered in Delaware, to pay their suppliers more promptly in exchange for taking a haircut on their invoices. At the same time it extended payment terms from 45 to 62 days.
Since launching the scheme across its smaller and medium-sized suppliers at the start of last year, Telstra has won 467 contracts with the federal government departments, worth $316.7m.
Unless it aligns itself with the federal government’s payment terms, the telco — which last year saw a 40 per cent drop in full-year net profit — risks being shut-out of vying for government business.