Accountants urge government to legislate against the late payment of small businesses


The Institute of Public Accountants (IPA) has called for the Federal Government to improve the financial outlook of SMEs by introducing a loan guarantee scheme and legislating maximum payment times for business-to-business transactions.

In its 2018 pre-Budget submission, the IPA – a professional accounting body representing 35,000 accountants, business advisers, academics and students – made recommendations to assist small businesses and SMEs, noting that three quarters of its members either work in or service these sectors.

In the submission’s introduction, IPA CEO Andrew Conway said he was “disappointed that the Government did not go further” in its response to recommendations contained in the Payment times and practices report of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

Released in April, the ASBFEO report highlighted the ramifications, for small businesses, arising from the practice of late and extended payment times, including restricted growth and solvency issues. It called out a practice, amongst large organisations, of using small businesses in their supply chain as a ‘cheap form of finance’ by extending payment times.

Conway commended the Government for mandating that by July 2019 all non-corporate Commonwealth entities are to pay all invoices up to $1 million within 20 calendar days (equivalent to 15 business days) on receipt of a correctly rendered invoice. However, he said more action was necessary to improve payment times for small businesses.

“The consequences of late payments on small businesses across the economy and across all industry sectors cannot be over stated,” he said,

“The ASBFEO report cites, ‘Payment times matter’ or more poignantly, ‘How I started using small businesses to finance my multinational conglomerate’. Sadly, this is not frivolous hyperbole; it’s a statement of fact.

“We urge the Government to reconsider its response to the report and to adopt all of the recommendations, especially recommendation 9 to legislate maximum payment times for business to business transactions.

“In the meantime, the situation is worsening despite payment codes. The impact on cash flow for small businesses is critical. Even though the unfair contract terms legislation will have a positive impact, we believe that it will not be enough to change ‘payment culture’ in Australia.” 

Conway said the IPA also recommended the Federal Government introduced a state-backed loan guarantee scheme to help increase the availability of finance to the small business sector.

“Australia is one of the only countries in the developed world without such a scheme, which would provide a limited state-backed guarantee to encourage banks and other commercial lenders to increase loan finance available to small business,” he said.

“We refer to the IPA Deakin White Paper [which] identifies a number of specific problems that smaller firms have in accessing finance from commercial banks, particularly smaller and younger start-up firms. Our evidence suggests that, by international standards, the cost of debt for Australian small businesses is high and risk-adjusted lending is not the norm in Australia.

“There is, hence, a strong case for designing and implementing a loan guarantee program in Australia to help remedy the specific problems of smaller and younger start-up firms being unable to finance new investment opportunities through normal commercial channels. When appropriately designed and administered, loan guarantee programs can deliver value for taxpayers through their support of employment growth, productivity, innovation and exporting.”

Other recommendations included in the IPA’s pre-Budget submission include:

  • Consideration, by the Government, of “a range of integrated strategies and tools… to bridge the capability and confidence gap small business employers (micro businesses less than 5 employees) face moving into a digital Single Touch Payroll (STP) regime”.
  • The introduction, by the Government, of a “publicly supported venture capital (VC) fund” to address funding problems faced by innovative firms with high commercial potential that are unattractive to bank lenders because they operate in “uncertain technological or new knowledge environments”.
  • The provision of strong support, by the government, for research and development (R&D) activity that promotes SMEs in Australia.

See also: Small Business Ombudsman calls for Govt to consider UK approach to boosting SME finance