Small Business Ombudsman to announce inquiry into late payments to small business

Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, says she is just weeks away from announcing an official inquiry which will look at the crippling impact of late invoice payments to small business.

In an exclusive interview with Apricity Finance, Ms Carnell said while the official figures on invoice payments in Australia showed payment times were improving, the statistics ‘disguised the real truth’.

“The statistics are a bit misleading because they put invoice payment times from big business and small business together. In truth, when you separate them out they’re not the same at all.”

Ms Carnell said late payers were the silent killer of small business.

“Major corporates and multinationals are putting huge pressure on small to medium sized enterprises. We’ve just seen [companies such as] Kellogg and Fonterra moving to 120 day payment times. Rio Tinto put their toe in the water, and we know that BHP and other mining companies are paying from 60 days.”

She told Apricity Finance that the situation was untenable for small business, with cash flow issues crippling business operations.

“We know that 90% of small businesses who go broke do so because of cash flow problems. Sometimes that’s due to a lack of customers, but we know that a large number go to the wall who have great customers.”

Why are the big companies delaying payments?

“Well, they get large amounts of free credit, which is worth a lot. Big business is under increasing pressure to report increases to their shareholders. If you can do that by not paying your creditors for a bit longer and improve your cost of credit, I absolutely understand why big business would do it. The problem is, should they be able to,” Ms Carnell said.

“What we need to understand is: does this get in the way of SME growth in Australia. And the answer has to be yes.”

Apricity Finance Managing Director, Linden Toll, said debtor finance was one solution for many small to medium sized businesses as a means of stabilising their cash flow.

“With products like ours, we are able to pay the invoices for small to medium sized businesses with high credit quality customers up front. This reduces their cash flow stress and enables them to get on with the business of what they do best,” Mr Toll said.

Ms Carnell agreed: “Debtor finance is really important and becoming more important because banks are reticent to lend on anything but bricks and mortar, and I absolutely support this form of finance.”

“We are planning at this point to announce an inquiry in the next few weeks because we have had feedback from SMEs that this issue is getting worse. SMEs have nowhere to go. They can’t be paid any slower,” she said.

“I believe in markets, but our view is that the market is not sorting this out. The major corporations are so big and so strong and control so much of our economy in our sectors that they have the capacity to pay no attention to the contract they’ve signed with you. They will determine when they pay you,” she elaborated.

Ms Carnell said the inquiry would work with small business commissioners across the States and Territories, along with SMEs, to determine the impact on economic growth.

“We’ll be looking at their experience and what’s happening to them. We’ll be looking at providers who have data in this space, and organisations that provide credit. One of the things we’ll be looking at is if there should be an annual set of data on payment terms in Australia. What we have seen from the UK is that Australia is way behind similar countries such as Germany and the UK. Large companies often say this is world best practice, and it’s simply not true. How can big companies paying slowly be industry best practice?”