GOVT DELAYS PAYMENT TIMES BILL AS NEW DATA SHOWS SMALL BUSINESS STRUGGLING

August 28, 2020

Australian Bureau of Statistics figures show that small and medium sized businesses are struggling to meet financial commitments, and yet the Morrison Government has delayed legislation that would improve payment times from big business to smaller suppliers.

The latest data from the ABS shows that small and medium sized businesses were almost twice as likely as large businesses to expect it to be difficult to meet financial commitments over the next three months.

These figures are not surprising considering that during the COVID-19 crisis we've heard some shocking examples of large companies unilaterally telling smaller suppliers that their payment terms are being blown out, in some cases up to 6 months from the date of invoicing. For small businesses, this is just not sustainable, particularly as they face unprecedented cash flow problems.

Yet the Morrison Government, despite planning to debate its Payment Times Reporting Bill 2020 in the Senate earlier this week, has delayed the bill without explanation.

Labor has consistently made the case that prompt payments from large businesses to their suppliers are crucial to SME cash-flow. This has never been more important as businesses face a global pandemic and a recession.

While we welcome the legislation, there are deficiencies with the Bill raised by a number of stakeholders.

The Bill requires approximately 3,000 large businesses and government enterprises, with annual turnovers of $100 million and above, to publicly report biannually on their payment terms and practices for their small-business suppliers.

This light-touch transparency is unlikely to significantly improve the status quo of self-regulation of payment times by big business.

The Bill does not mandate maximum payment times to small businesses, as the Small Business Ombudsman has called for. Nor does it provide for penalties or remedies on invoices that are paid so late as to damage the business.

Other concerns raised with the Bill include the extensive use of delegated legislation (the Minister’s Rules), as opposed to the legislation itself, to define a number key concepts integral to the regime.

Of particular concern is the coupling of unconscionably long contracted payment times with the practice of supply chain financing, or what has been described as reverse factoring. In these situations, if the small business supplier wants to be paid on time they essentially pay a fee, often to a third party financier.

That is why Labor will introduce a ‘failsafe mechanism’ amendment as an option if the Government’s scheme as designed does not broadly improve payment times to small businesses to 30 days or less.

The failsafe mechanism can be triggered after three years of the scheme operating and will allow the Regulator (created by the Government’s Bill) to force large businesses not paying small businesses on time to pay them within 30 days of face hefty fines.

The Payment Times Failsafe Mechanism is intended to provide an incentive for reporting entities to collectively improve their payment practices or run the risk of more stringent regulation.

For seven years, this government has failed to act on improving payment times for small businesses, and they haven’t effectively utilised this time in office to design an effective scheme to reduce payment times so small businesses are treated fairly.