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Working With the Big Guns: Could You Survive for Nine Months Without Pay?

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Working With the Big Guns: Could You Survive for Nine Months Without Pay?

It breaks my heart to hear about hard-working families facing bankruptcy (or worse) because the big business they’re subcontracted to, have stopped paying.

If you haven’t heard about the recent situation between the State Government and unpaid subcontractors in northern NSW, you can listen to the 9 News Report, Highway to Hell. 23 families are owed 7.5 million for work they have already done, under a contract between the NSW Government and the head contractor, to upgrade the highway between Woolgoolga and Ballina.

Subcontractor payments to these Small Businesses stopped nine months ago when an intermediary contractor went into administration. The Government has paid out the contract, but there were no safeguards in place to ensure payments reached the subcontractors. The Supreme Court has found the head construction company liable for the debt, but the businesses affected won’t see their money without a fight. And that’s a fight difficult to take on when you’re already stretched to breaking point.

While the State Government acknowledges that the way they pay contracts needs to improve, that doesn’t help the 23 family businesses who are doing it tough right now.

Doing business with government departments or big businesses can often be the opportunity a Small Business needs to increase their turnover, and edge their way into a new (and often lucrative) market. The risks, however, are huge, and ill-prepared (or ill-treated) Small Businesses often have the door to a successful future, slammed abruptly in their face.

Among the many challenges of tendering for big contracts is the uncertainty of getting paid. Cash flow can be a problem across all levels of business, but the bigger the contract, the more extended a Small Business can become, just to fulfil their service. If payment isn’t made when it’s expected, it can mean more than just a lean week or two.

These three sources of information won’t solve the problem, but knowledge is power:

NSW State government payments.

The 30 day payment policy that applies to State government departments means that Small Businesses engaged in providing services to them, can receive interest on overdue payments once it hits $20. I had some difficulty finding this information, so the link is provided, and the Interest calculator can be found here. Small Businesses are required to register with the particular government department by either providing a letter from their accountant, a statutory declaration or a BAS Statement to verify their Small Business status. Only four government departments currently display their contact details and their process for registering. In all other cases, you’ll need to find your own contact point through the accounts department.

Federal government payment policy.

As with the State payment policy,  Federal government contracts are also to be paid within 30 days or pay penalty interest once it exceeds $100. Unlike the State policy, there is no need to register as a Small Business, because eligibility to apply the policy is based on the size of the contract (which needs to be under $1 million).

The National Payment Transparency Register.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has established The National Payment Transparency Register as a way for big businesses to list their payment terms. There are only a few entries at this stage, but worth checking before you agree to do business with them.

Little comfort.

I speak from experience when I say that these measures bring little comfort to businesses who are owed large sums for an extended period. The need for a government department to pay interest, may require them to explain that small expense to their internal account keepers, but is that enough to deter late payment? The ability to charge $320 interest on a payment of $40,000 that’s a month late, isn’t practically helpful for Small Businesses trying to juggle pressing expenses.

That interest won’t cover the fees and interest on overdrawn accounts or compensate for the damage done to a sole trader’s credit rating. It also won’t pay wages or mortgages or essential services to enable the business to continue operating. But until something better comes along, it’s all we’ve got, so make the most of it.

The most important point I need to make is that two of these processes require forethought. Any benefit to be gained from the National Payment Transparency Register comes before you sign a contract. And calling on the NSW State Payment Policy requires registration as a Small Business before they’re late with your payments.

If this has been news to you, let someone else in on the secret. And if you hear of changes and initiatives in the way the big guns are required to pay Small Businesses, share the knowledge.

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