Late payments still squeezing small business: ‘it’s just not cool to blow out your times’

More than 30 per cent of small-business invoices are being paid late, according to new transparency register.

’While it’s still early days, the register reveals that more than 30 per cent of invoices are being paid late by big business for what has already been earned by small business. That’s incredibly disappointing.’

Some of Australia’s biggest corporations are still paying a substantial portion of their small-business suppliers on controversial supply-chain financing arrangements, according to the federal government’s newly launched payment times register.

The register requires more than 6000 big businesses with turnover of more than $100m a year to disclose the payment terms they offer to small suppliers of goods and services, as well as the average payment times they achieve.

Small Business and Employment Minister Stuart Roberts launched the register on Tuesday, saying it would help deliver transparency to small businesses considering contracts with Australia’s corporate giants.

Companies are required to report to the register every six months, and Mr Roberts said the first set of data showed that about 44 per cent of small businesses were being paid within 20 days.

The average payment term offered across the country was 37.3 days, Mr Roberts said.

“According to Xero the value of late payments to small businesses is estimated at $115 billion each year, this is a big deal,” he said.

“Our payment times reports register will empower small businesses with the ability to see who is paying on time and who isn’t.”

Australian Small Business and Family Enterprise Ombudsman Bruce Billson said the data showed “disappointing” levels of late payments by big business.

“It’s an important first step in addressing late payments, which continues to be a huge issue for small businesses,” he said.

“While it’s still early days, the register reveals that more than 30 per cent of invoices are being paid late by big business for what has already been earned by small business. That’s incredibly disappointing.”

Analysis of the data by The Australian also shows the extent to which controversial supply-chain financing arrangements – in which small businesses are asked to discount invoices in exchange for shorter payment terms – are still used by big companies.

It shows that more than 25 major Australian companies paid more than 20 per cent of invoices lodged by small businesses through supply-chain financing arrangements in the first six months of 2020.

While such arrangements – notoriously promoted by collapsed financial services firm Greensill Capital – can help small businesses manage their own cash flows, they have also been criticised for enabling big businesses to push out payment terms and force small suppliers to take discounted rates in order to get paid within a reasonable timeframe.

Mr Billson told The Australian that supply chain financing could offer a useful service to small businesses, but not when big companies used them as an avenue to increase their payment times.

“It‘s an ongoing concern about payment times. Generally, though the supply-chain financing concerns have subsided as larger companies have realised it’s just not cool to blow out your payment times,” he said.

The register gives only percentage figures, and does not indicate the actual number or value of invoices paid in its public report.

But it shows that all of the small business suppliers to car parts distributor Wesfil, a subsidiary of ASX-Listed GUD Holdings, were paid under supply-chain financing arrangements. Only 11 per cent of those suppliers were paid within 20 days, with 65 per cent paid between 30 and 60 days after the invoice was lodged.

More than 90 per cent of car rental giant Hertz’s small businesses invoices were paid under supply-chain financing agreements, with the company noting the agreements were with its hundreds of national franchisees.

International oil and gas giant Chevron – which introduced a supplier payday lending scheme in March 2020, as small businesses were being crunched during the onset of the pandemic – paid 22 per cent of small business invoices using supply-chain financing provided by C2FO.

Rio Tinto pledged to ditch similar arrangements in February 2020, after The Australian revealed the extent to which the company’s “dynamic discounting” scheme was squeezing suppliers.

While the register still shows a number of Rio subsidiaries with substantial exposure to supply chain financing arrangements – such as Rio Tinto Shared Services, and Rio Tinto Aluminium – a spokesman for the company said Rio was paying suppliers their full invoiced amount, even though the company was yet to fully phase out the “legacy” platform used to implement the scheme.

“Suppliers still transitioning are being paid the full valid invoiced amount, with any other costs being borne by Rio Tinto,” he said.

“Transition timing has been influenced by a number of factors, including as we deal with vulnerable suppliers during Covid who remain on the platform at no cost to them with free accelerated payments. When the transition is finalised, small suppliers will be paid under our new 14-day terms.”