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SME finance lender has called for improved regulation on payment times as big businesses continue to fall behind.
The comments come on the back of the independent review of the Payment Times Reporting Act 2020 (which came into effect on 1 January 2021) and has seen “little improvement” according to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson.
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The government's review, which opened 6 December 2022, will consider whether government policies have improved payment terms and practices.
Under the Act, large businesses and government enterprises (known as reporting entities) must submit information on their payment terms and actual payment performance for small businesses to the Payment Times Reporting Regulator in Treasury every six months.
While the register was set up so small businesses could check and decide what businesses had good track records, Mr Billson said it’s a “snowstorm” of data and hasn’t seen improvements in reporting times.
“A vast number of big businesses just aren’t meeting the mark and it’s causing needless harm and cashflow challenges for small and family businesses who are waiting too long to have their invoices paid,” Mr Billson said.
Backing the ombudsman, ScotPac chief executive Jon Sutton said the system still relies on debtors paying SMEs within the terms of their agreement and called for improved payment times.
“SMEs employ around 5 million people in Australia, so slow payments and other cashflow disruptions can impact around a fifth of our population,” Mr Sutton said.
Mr Sutton explained invoice finance gives SMEs the ability to instantly unlock working capital tied up in their unpaid invoices.
“Many ScotPac customers use invoice finance to accelerate growth through acquisitions and asset purchases. Others use it primarily as a cash flow management tool,” Mr Sutton said.
Thus, lagged payment times can disrupt the flow of finance.
“We saw a large spike in businesses affected by tardy payments in 2022, particularly when Government COVID support programs ceased,” Mr Sutton said.
Construction among the worst performers
ASBFEO has analysed data, released by the regulator, of more than 7,000 big businesses, and found 24 per cent take more than 120 days to pay their suppliers.
Among the worst performers taking more than 30 days to pay their small businesses included 85 per cent of businesses operating in manufacturing, 82 per cent of construction businesses, and 24 per cent of big businesses in retail trade.
Mr Billson explained the cost of building materials, supply constraints, and labour shortages are all weighing on payment times for the construction industry.
“Builders might be waiting to get paid for work that they can’t quite finish. Therefore, they’re not getting fully paid and they’re holding up payments to their subcontractors because of that situation,” Mr Billson said.
“That’s happening a lot in the construction industry and it’s hurting an awful lot of businesses.”
The report also found the best performers were big businesses operating in public administration and safety, but it was still only just over half (51 per cent) of small-business invoices paid within 30 days.
Mr Billson praised the big businesses that paid their bills in fewer than 20 days and added that initiatives such as e-invoicing enabled faster payment times and were significantly cheaper to process than other payment methods.
[Related: Payment times welcomed: Ombudsman]
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