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Are Your Biggest Customers Actually Killing Your Business?

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Are Your Biggest Customers Actually Killing Your Business?

Wouldn’t it be wonderful if your clients paid your invoices on time, every time? What a difference that would make to your business. No more spending a day a week making phone calls chasing money. No more having to talk to the bank manager (again) about a short term overdraft. No more sleepless nights wondering when (or even if) your invoices will get paid.

Unfortunately, that is not the case for so many small business owners. Cash flow problems are the #1 cause of small business failure in Australia and a large proportion of that is caused by late payment of invoices by customers.

Back in January 2016, Kate Carnell, former ACT chief minister and head of the Australian Chamber of Commerce and Industry, was appointed as Australia’s first Small Business and Family Enterprise Ombudsman.

“Payment times matter” 

Ms Carnell didn’t let the grass grow under her feet and has become a vocal spokesperson for her small business constituents. She initiated an inquiry into Payment Times and Practices and the final report from that Inquiry has just been released.

The report findings won’t surprise many of you I’m sure – especially if you have been selling to a big company or multinational corporation. In fact, the subtitle of the Report is “Payment times matter or How I started using small business to finance my multinational conglomerate”.

The Inquiry found that the worst payers are large and multinational businesses – and they’re getting even worse. More than half the people who answered the inquiry’s survey said that these companies were always or frequently late with their payments. Government Departments and Agencies also got a (dis)honourable mention. One in five small businesses reported that they were always or frequently late.

You’ll pay me when?

Late payment of invoices wasn’t the only issue highlighted by the Report. Extended payment terms, where the big company unilaterally imposes a 60, 90 or even 120 day payment period, do the same damage to small business. As I have pointed out in previous posts, the effect is to turn their small suppliers into banks – using their money instead of paying interest at a bank.

But wait, there’s more. Some of these companies with extended payment terms will then offer their small supplier loans to help their cash flow while waiting for their payments. Yes, really.

When companies with extended payment terms then pay their invoices late, the damage to cash flow can be critical. My own personal record is a whopping 428 days waiting for payment from a large multinational firm while they were dealing with a change in their Purchase Order system. Fortunately in my case it was not for a large amount but the physical and mental effects of sustained stress can cripple many small business owners.

If you can’t pay your staff because you haven’t been paid it’s pretty stressful. There were really sad stories of people having break downs and significant family issues like marriages breaking up. Kate Carnell

What is to be done?

The Payment Times Inquiry Report has come up with 10 recommendations for changes in legislation. The most notable ones are:

  • The Government to impose a maximum payment time limit for all B2B transactions.
  • The Australian Government adopt a 15 day* payment time limit for itself and all its agencies.

These certainly get my vote.

Another recommendation is to introduce legislation that will shine a light into the dark recesses of big company payments. Ms Carnell has recommended a public register of large businesses payment terms and how they are performing against those terms. Small business could check the register before deciding if it’s worth pursuing a contract with a particular company.

For a full list of the recommendations, you can read the complete report here.

The Business Council of Australia has already offered to implement a voluntary code on payment terms in response to the report but this was immediately rejected. Drawing on the UK experience, Ms Carnell said that:

We think a voluntary code will be signed by the good guys and those that aren’t will just ignore it.  That’s what happened in the UK [which has a voluntary code]. 

No doubt, there will be long, drawn-out debates about these recommendations and the large business lobby will fight tooth and nail against them. I’m not exactly holding my breath but I am very hopeful that the voice of small business will eventually prevail and we will see some helpful legislation.

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Showing 3 comments
  • Amanda Fisher
    Reply

    Great article Bronwyn Reid. And unfortunately oh so true.

  • Bronwyn
    Reply

    Thanks Amanda. The ASBFEO Inquiry Report has certainly added volume to the voice of Small Business on how harmful long payment times are.

  • mm
    Bronwyn reid
    Reply

    Interesting to see Amanda that the Greens are going to introduce legislation that will require payments to Small Business be made in 30 days. The Greens are pitching to be the political party for Small Business it seems.

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