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Budget action may cut payment times to small business

By  Stephen Sealey

Small business owners constantly battling to get paid on time will be watching the May Budget closely for a sign the Federal Government will act to address this critical cashflow problem.

It is estimated that almost half of all small businesses have more than $20,000 in overdue payments, and 60 percent of business owners say the situation is only getting worse.

Earlier this year, a Budget submission from peak advocacy group Council of Small Business Australia (COSBOA) called for the Government to lead a campaign to ensure small businesses were paid on time – starting with paying its own invoices within 15 days.

In April, the Australian Small Business and Family Enterprise Ombudsman released the results of a major inquiry into the issue which received thousands of submissions from worried business owners.

The Ombudsman’s inquiry identified large companies as the main culprits in paying invoices outside of trading terms and uncovered stories of breakdowns and relationship splits caused by the stress of not being paid on time.

It claimed that extended payment times for small businesses was effectively a form of cheap finance for large companies and called for new laws to set a maximum payment time for business-to-business transactions.

Additional recommendations included laws requiring large firms to disclose publicly all their payment terms and their performance in relation to those terms.

It also urged the Federal Government to adopt a 15-business working day limit on its own payment terms from July 2018, a measure that could logically be referenced in either the 2017 or 2018 Budget.

“We found that large multinational businesses are moving to slower and slower payment times,” said Ombudsman Kate Carnell.

“In fact, we have seen a number of companies that have moved as standard practice to 120 days,” she said. “Add another 30 days onto that and you can understand that small businesses simply can’t cope.

“Ninety percent of small businesses that go broke, go broke because of cashflow. We’ve simply got to change this.”

While the Federal Government has acknowledged the findings of the Ombudsman’s inquiry, it is yet to release a formal response, prompting continued pressure from COSBOA for serious action.

“It is good to see that a number of small businesses have come out and supported reducing their payment times to support small businesses,” COSBOA said.

“COSBOA has been calling for this for a number of years and it is great to have been able to work with the Ombudsman to turn the heat up. Now we need the Parliament to back small business too.”

Small Business Minister Michael McCormack has praised the work of the Australian Small Business and Family Enterprise Ombudsman for giving a voice to the challenges faced by Australia’s small businesses.

Mr McCormack said the Government would take the necessary time to review the Ombudsman’s report but said he was aware of the importance of cash flow to small businesses.

“Having run my own small business and waited at times for many months to be paid for work already completed, I understand how frustrating and burdensome late payments can be,” he said.

“I will be taking some time to review this report, however, I am focused on making sure small business can negotiate fair payment terms and that these terms are met.”