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More Progress on 30 Day Payment Terms for Small Business

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More Progress on 30 Day Payment Terms for Small Business

Anyone who follows my posts, both here and elsewhere, will know that I have been writing about the scourge of extended payment terms for ages (maybe to the point of boredom?).

However, it is such an important subject that I feel it is my duty to bring you up to date with the latest iteration in this long, drawn-out struggle between the big end of town and the businesses here in Smallville.

November saw some more progress in getting big organisations to pay their Small and Medium Enterprise (SME) suppliers in a reasonable amount of time, i.e. 30 days. In fact, in one case, (mining giant BHP) has extended 30-day terms to all companies that they deem to be ‘local’, regardless of size.

These latest developments all relate to the mining industry, and all were announced in the last two weeks of November 2018.

Peabody Energy was the first cab off the rank. This company announced that 30-day payment terms would apply to all their SME suppliers.

Next was BHP. BHP already has 30-day terms for small suppliers, but they have now extended this to suppliers of any size, provided they are ‘local’. Local means located in the areas where they have a mining footprint.

Bringing up the rear was Anglo American, with an announcement similar to Peabody’s; all SME’s will now be on 30-day payment terms. In the words of a company spokesperson, this action “Formalised an existing practice within the company’s Australian operations.”

I admit that I haven’t yet dived into the detail of exactly what the terms ‘local’ and ‘Small and Medium Enterprise’ mean.

However, of this trio, BHP appears to be in first place; not discriminating by size, but simply by where the supplier is located. Peabody and Anglo are an equal second both announcing identical policies. Maybe Anglo has a nose in front, given that it has already been paying some small suppliers in 30 days.

For comparison, the ‘standard’ payment terms for these companies are:

  • BHP – 60 days.
  • Peabody – 60 days.
  • Anglo American – 60 days from the end of the calendar month in which an invoice is received (or longer if specified in the Purchase Order).

Why the change, and why now?

While all changes that help SME’s are welcome, all three of these giants have been soundly beaten by many, many other smaller players in the mining industry. By far the majority have always paid their suppliers in 30 days, some even less.

So why are the largest companies changing, and why now?

Here are my best guesses:

1. The resources industries are back in the black following the great cost-cutting exercises of 2013 – 2015. Some of the majors expanded their payment terms during this period, some out to 90 days, in an attempt to conserve capital. Those strict capital controls are now loosened.

2. All mining company executives will have been watching the Parliamentary Inquiry into how the mining industry can assist regional businesses. Universally, suppliers, economic development organisations, industry associations and local councils submitted that extended payment terms were causing great harm to regional communities and economies.

3. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, has been ramping up that organisation’s research into extended payment terms and late payments. The Minister for Small Business is also on-board, so political pressure must be building.

4. This really is speculation, but it is a possibility. Now that the industry is ramping up again, there is increased competition for services and equipment. However, unlike the previous boom, the mining companies are showing reluctance to simply throw money at the scarcity problem and bid-up prices.

Without being able to attract services and products by simply paying more, they are having to attract suppliers in other ways. BHP, by paying all local companies in 30 days regardless of size, is making a play to be the ‘customer of choice’.

Now, will other industries follow?

I may be completely incorrect in my assumptions, but I suspect that I am not. It will be very interesting to see the results of the latest ASBFEO Survey that is seeking to establish what companies have as their normal payment terms.

We can only hope that being in the spotlight will create the same chain reaction for other industries.

Unfortunately, I think you will be hearing from me on extended payment terms for quite some time yet.

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