Ombudsman releases final recommendations for small business payments

Elizabeth Barry 12 April 2017

business report

The small business ombudsman has called for a maximum payment time for business transactions and wants business's payment times publicly disclosed.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has today released findings from its inquiry into Payment Times and Practices among small businesses in Australia.

The inquiry supported previous research and anecdotal evidence from the industry, which shows that there is a growing trend for Australian companies to delay payments to small business suppliers by 30 days, with some extending it up to 90 or even 120 days.

“Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance," said ASBFEO Kate Carnell. “Something must be done. Small business should never have to act as a bank for big business, helping to finance multinational companies."

The Ombudsman made 10 recommendations, 6 of which are policies for the government to adopt within its own departments, including the enforcement of a 15-business-day payment time by July 2018, while the remaining 4 are external.

The four external recommendations are:

  • Include best payment practices, including set payment times, in industry codes that regulate B2B transactions.
  • The Australian Government to introduce legislation for larger businesses (top 100 ASX-listed and multinationals) to publicly disclose all payment terms and practices and performance on those terms.
  • The Australian Government to introduce legislation for a maximum payment time for B2B transactions.
  • Governments should encourage technology solutions such as e-invoicing to facilitate payment practices.

When discussing the maximum payment time legislation, Carnell said it was important for the government to set the standard.

"Terms greater than this can be agreed upon by both parties to meet specific industry needs, however, where longer terms are called into dispute, they may be considered to be an unfair contract term,” she said.

Carnell also welcomed the introduction of a voluntary industry prompt payment code, such as what was announced by the Victorian Government yesterday, but said that overseas experience showed that these codes alone did not compel all businesses to change their behaviour.

The ASBFEO also outlined its own action items, which include the development of a national payment transparency register to publish business payment times and practices against a benchmark for good and bad performers.

With regards to the report, small business minister Michael McCormack will review the recommendations and release the government's response. However, he seems to be on the Ombudsman's side so far.

Speaking to the Sydney Morning Herald, he said, "60, 90 and 120 days are not good enough. Small business should not be used as big business's bank. My message to big business is clear – negotiate fair terms and stick to those terms."

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