Australia’s Late Payments Fight Shows The Limits Of Government Intervention

When it comes to late B2B payments, eyes most often turn toward the U.K., where payments and FinTech companies have worked to raise awareness of the issue, and where government policymakers have taken steps to combat the problem. According to the latest figures from Dun & Bradstreet, small businesses (SMBs) in the U.K. are owed an average of more than $88.6 million each from their corporate customers.

But the late B2B payments problem is a global one, and while the U.K. explores how to approach the topic, there is another jurisdiction in which the late payments fight is heating up: Australia.

Recent research from Australian small business accounting firm Xero and payments company American Express explored just how big of a stressor late invoice payments are on Australian companies. Analysts found that more than a third of outstanding invoices at businesses with between $1.5 million and $230 million in annual turnover cannot be reconciled at least every other month.

Xero and Amex described the nation’s late payments problem as “endemic” across the mid-market.

The matter has landed on the desks of policymakers too.

Australia’s Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell is one of the loudest opponents against late supplier payments. Last month, reports said she began the process of establishing a mechanism for large corporates to register their supplier payment practices and collect data on payment times. According to government data, up to half of Australia’s SMBs are owed more than $20,000 by larger companies who, according to Carnell, use their small suppliers as “cheap finance.”

In its final report on Payment Times and Practices, the ASBFEO recommended legislative action to promote fair payment terms, along with the adoption of digital payment technologies to accelerate supplier payments. Following a probe into Australia’s late payments culture, Carnell also provided recommendations to establish a National Payment Transparency Register, an online portal that can also support small suppliers’ submission of complaints of late payments by their customers.

The report caught the attention of the Australian Institute of Public Accountants (IPA) this month, calling on the government to take action in support of faster payments to small- and medium-sized suppliers. The IPA, which represents 35,000 accountants and business advisors, submitted recommendations on how to support SMBs in the country in its 2018 pre-budget submission, according to reports in Dynamic Business last week.

In that subission, IPA CEO Andrew Conway said he was “disappointed that the government did not go further” to act on recommendations by the ASBFEO on late supplier payments, reports said.

“The consequences of late payments on small businesses across the economy and across all industry sectors cannot be overstated,” said Conway. “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,” he added.

Wayne Debernardi, general manager of Media and Strategic Communications at the IPA, recently spoke with PYMNTS and emphasized the Institute’s support of the Ombudsman’s recommendations.

“Small business is the most vital sector for a thriving economy, and anything that can be done to support their productivity and business success should be pursued,” he said.

One of the largest hurdles for today’s small businesses, especially those facing longer payment times from corporate customers, is availability of financing.

“Access to affordable finance is still a difficult issue facing small businesses, and cash flow is vital for their business community,” Debernardi stated. “Many small businesses fail without adequate cash flow to sustain their operations. Hence, having their invoices paid in a timely manner is critical.”

Ombudsman Carnell recently highlighted the issue of SMBs’ access to financing when she offered harsh criticism of the nation’s banking industry, describing the process of getting financial institutions (FIs) to comply with new bank rules “like pulling teeth.” The regulations require banks to nix unfair loan contracts with small business borrowers and increase coverage of total loan facilities.

“The banks’ initial underdone response to the legislation serves as a reminder that [they] were once again trying to ‘game’ the rules, and this erodes trust,” Carnell said in a statement last August, noting that it took months for banks to comply with the new rules that came into effect in 2016. “It’s hard to understand why all these things are like pulling teeth. It came into effect last November, and it has taken my office and ASIC until now to take them to where they are pretty close to complying with a law that has been in effect for eight months.”

The delay of complying with new rules showcases the limitations of regulations on making a meaningful impact on late payments and SMB finance.

“Regulators can play a role in enforcing [timely invoice payments] to a certain extent,” noted Debernardi.

He cited recent efforts by the government to lead by example, describing the initiative as “a big step in the right direction” but warning that “enforcement without consequences, such as penalties, will still be difficult.”

In November, reports said new government rules came into effect that require government employees to pay contractor invoices within 20 days, a direct response to recommendations from Kate Carnell. The rules apply for contracts up to $1 million and, according to reports, will affect more than 6,800 small suppliers that have contracts with the government.

Previously, the Business Council of Australia also launched an initiative in early 2017 to deploy a code of supplier payment ethics. Companies can sign up for the code and vow to pay their own suppliers within 30 days, however the effort is voluntary and unenforceable, again highlighting the limits of government intervention.

“Legislation, such as the recent unfair contract terms legislation, will have a positive impact,” Debernardi stated. “However, we believe that it will not be enough to change ‘payment culture’ in Australia.”