The Coalition has been urged to follow the example set by the UK Government and introduce legislation to deter big business from making late payments to SME suppliers.
From April 2017, large companies and limited Liability Partnerships (LLPs) in Britain will be required by law to publicly report twice a year on their payment practices and performance, including the average time taken to pay supplier invoices. Failure to do so will be a criminal offence.
The regulations were tabled in UK parliament by Small Business Minister Margot James, who said in a statement that Britain’s 5.5 million SMEs were collectively owed £26.3 billion in late payments and this was impeding their ability to scale up. She added that the new legislation will address bad payment practices and lead to improved standards.
Alan Osrin, the Managing Director of Sage Australia, told Dynamic Business that the accounting software company was encouraging Federal Government to consider similar legislation due to “the prevalent corporate culture in Australia where late payment by big business to small business is seen as acceptable”.
“Not being paid on time affects cash flow, profitability and ultimately a small business’s chance of survival,” he said.
“It also has wider flow-on effects to the economy as hiring decisions are delayed and investment in innovation stalls.”
“Our small business customers across the country tell us that late payment is still one of their biggest barriers to competing with larger suppliers. We know it affects their ability to invest and innovate.
“It is time for large businesses to stop habitually using smaller suppliers as a line of credit and to follow Sage’s lead by committing to paying small businesses in a timely fashion.”
Colin Porter, managing director of commercial credit reporting bureau CreditorWatch queried the utility of the UK legislation, noting that information on the payment performance of companies is already available in Australia.
“If big businesses were required by law to publicly report on how they pay suppliers in the way proposed, this wouldn’t necessarily produce accurate reports, as it may lack integrity and would require regular auditing and process compliance” he explained. “As a bureau, CreditorWatch already collects payment data between businesses to accurately predict how they pay each other, be that corporates or small businesses. There is obviously greater integrity with an independent third party receiving mass information on a daily, weekly or monthly basis.”
Sage Australia is not alone in calling for the government to take steps to address the impact of late payment culture. Cloud accounting provider MYOB has previously called for the introduction of a ‘national prompt payment protocol’ to ensure small businesses are paid on time. MYOB CEO Tim Reed told Dynamic Business that his company’s proposal involved Australian government and big businesses voluntarily signing up to protocol. He explained, “For businesses and governments that do sign-up to the protocol, but fail to abide by the principles, a penalty would be incurred.”
See also: Big businesses can help eliminate barriers to SMB owners growing their super, says MYOB, Late payments impacting 3 in 4 small businesses