Suppliers angry as Rio rejects rort claims
Rio Tinto insists it is not forcing Australian suppliers to discount bills if they want to be paid on time, as political pressure mounts.
Rio Tinto insists it is not forcing Australian suppliers to discount their bills if they want to be paid on time, as political pressure mounts and suppliers continue to voice outrage over the mining giant’s so called “dynamic discounting” scheme.
The Australian revealed on the weekend that the company was “aggressively” pushing the scheme on to its 10,000 suppliers, sparking an investigation from the Australian Competition & Consumer Commission and outrage from contractors.
Labor has also weighed in, saying Rio’s dynamic discounting scheme is unconscionable and harms the national economy.
“A strong stance and leadership is needed on this issue,” said opposition spokesman for small business Brendan O’Connor.
“Making small businesses pay a fee to be paid on time is unconscionable,” he said.
“Small businesses require prompt payments to help manage cash flow and to grow, particularly when access to finance is tight. The economy does not benefit from this type of financialisation.”
But a spokesman for Rio dismissed concerns that suppliers were being forced to sign up to the dynamic discounting scheme: “Our suppliers do not have to discount their invoices to get paid on time.
“Rio Tinto has 30-day payment terms for small and medium suppliers with up to $1m of expenditure.
“Rio Tinto introduced a new online portal in 2019 to offer suppliers greater transparency on their payment status, including viewing invoices and tracking payments.
“Roughly half of our 10,000 small to medium-sized suppliers have chosen to use this voluntary system. The portal also provides an option for accelerated payments for those requiring shorter payment terms than the agreed 30 days. This feature is entirely optional and to date, less than 300 suppliers have chosen to use it.”
But Rio’s comments are contrary to what suppliers have told The Australian in the wake of the weekend report.
“As a small service provider (less than $20,000), invoiced Rio mid-August, paid mid-October. 45 days from end of month approval. Fact,” one supplier said.
Another supplier said that BHP and Newcrest also offered 30-day payment terms to companies that qualified, “which includes small businesses and some local suppliers”.
“However, they don’t proactively offer these. You have to find the right person in the company and meet with them to press your case. They are usually very elusive.”
One medium-sized supplier said Rio’s scheme cost it more than $20,000 a month if it wanted to be paid on time, while another said it waited about five months to receive payment, with delays becoming more frequent after Rio moved its supplier payment centre to Pune in India.
Rio’s dynamic discounting scheme targets SME suppliers, according to company documents, offering to pay invoices before the due date in exchange for a discount of up to 2 per cent. If all suppliers signed up it would deliver a $200m windfall to the mining giant.
The ACCC has launched an investigation into Rio, focusing on whether its scheme involves unfair contract terms or unconscionable conduct, considering small businesses have little choice but to take the discount to protect their cash flow.
Labor is considering reviving one of the policies from its failed election campaign last year: introducing penalties of up to $10m for contracts that contain unfair contract terms and increasing the number of small businesses eligible for protection from such contract terms.
“Australia’s current laws regarding unfair contract terms aren’t tough enough and the government has an obligation to take action to make contracts fairer for small business,” Mr O’Connor said.
“Calls from federal Labor, small business stakeholders, the ACCC and the Australian Small Business and Family Enterprise Ombudsman for tougher measures have not been sufficiently heeded by this government. It is imperative that Small Business Minister Michaelia Cash listens to the concerns of small business and takes some action.”
A parliamentary inquiry, chaired by former Nationals leader Barnaby Joyce in 2018, examined the contribution the big mining companies made to regional communities and also payment terms to suppliers.
“Financing packages that take 2 per cent off the invoice total are paid in 30 days. Some overseas companies are bidding for projects on that basis, which slashes margins — very nasty,” a member the Resource Industry Group told the inquiry.
However, although dynamic discounting, supply chain finance and extended payment terms were raised during the 2018 federal parliamentary inquiry, the committee made no mention of payments in its recommendations, instead deferring to the voluntary Australian Supplier Payment Code.
And if that code was not “strengthened” by July 2019, the committee deferred to the Australian Small Business and Family Enterprise Ombudsman’s Payment Times and Practices Inquiry — Final Report from 2017. That inquiry recommended the government legislate a maximum payment time.
Do you know more? lynchj@theaustralian.com.au