ACCC, ASIC join forces to target supplier payment schemes

The competition and financial regulators are joining forces to investigate supplier ‘payday lending’ schemes.

ACCC chairman Rod Sims Picture: AAP

Australia’s competition and ­financial regulators are joining forces to investigate the increasing use of supplier payday lending schemes among the nation’s biggest companies.

The Australian Competition & Consumer Commission has confirmed it is liaising with the Australian Securities & Investment Commission over the use of such schemes, which involves suppliers discounting their invoices in exchange for prompt payment.

The ACCC is also pushing for a strengthening of unfair contract terms under Australian Consumer Law to bolster protections for small and medium-sized businesses that feel forced to use supply chain financing schemes to protect their cash flows.

In response to a series of questions from Labor employment and industry spokesman Brendan O’Connor, ACCC chairman Rod Sims said he had already investigated several companies that had used supplier payday lending schemes to blow out payment times.

“Some of these matters were resolved voluntarily by the large business in question changing its practices either of its own volition, or following contact from the ACCC,” Mr Sims wrote in a letter to Mr O’Connor.

Two of Australia’s biggest companies, Rio Tinto and Telstra, ditched the use of such schemes earlier this year after The Australian revealed they had partnered with Taulia — a company registered in the low-tax US state of Delaware that uses big data and artificial intelligence to calculate how much a supplier can be squeezed.

Construction giant CIMIC continues to use its so-called “early payment” scheme, offered through global financier Greensill. CIMIC introduced the scheme last September, while extending payment terms for one of its subsidiaries, UGL, to 65 days.

Mr Sims said some investigations were abandoned, citing lack of evidence from small business suppliers that feared “commercial repercussions” if they spoke to the ACCC.

“However, we note that the ACCC now has the power to compel business to provide information and documents in relation to allegations of unfair contract terms,” he said.

Mr Sims added the ACCC was working with ASIC on allegations of misconduct around supplier payment times and the use of supply chain financing, also known as reverse factoring.

“Reverse factoring is also likely to involve the supply of a financial service which would mean some of the alleged conduct may fall for consideration under the Australian Securities and Investments Act rather than the Competition and Consumer Act,” he said.

“The ACCC will liaise with ASIC in assessing any allegations of conduct around extended payment terms involving the offer of supply chain financing.”

Mr Sims also continued to push for a strengthening of consumer laws around unfair contract terms (UCTs). Treasury is reviewing the protections of UCTs for small businesses.

The increased scrutiny of supply chain finance schemes comes as the average SME is waiting 56 days to be paid on average — almost double the limit set in the Business Council of Australia’s voluntary supplier payment code — according to new research.

Scottish Pacific commissioned analysts East & Partners to complete the study, which highlighted the disparity in how long it takes businesses with turnover of $1m-$20m to be paid. Its chief executive, Peter Langham, said pay­ment times varied from seven to 134 days.

“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 borrowing,” Mr Langham said.

Small Business Ombudsman Kate Carnell said late payments were already costing Australian small businesses about $7bn a year.

The government plans to introduce its Payment Times Reporting Framework legislation this autumn.

Once implemented, the scheme will require businesses with an annual turnover of $100m or more to report how and when they pay their small business ­suppliers.