The Australian government is beginning their crack down on late payments and it seems at the top of their list are the biggest players of the building industry.
In an interview with the Australian Financial Review, Australian small business ombudsman Kate Carnell said that CIMIC and other construction companies that do not pay their sub-contractors and suppliers within 30 days should be put “on notice” that they will no longer win any state or federal government contracts.
“The government shouldn’t give contracts to companies that aren’t behaving in what I believe is an ethical manner, and paying small businesses slowly isn’t in my view ethical,” Ms. Carnell added.
This move comes after it was revealed by the Financial Review that UGL, CIMIC’s rail services subsidiary is planning to extend the payment period to 65 days starting in mid-October.
In response, the office of the Small Business Ombudsman penned a letter to the company, urging it to return to practising the 30-day payment period, which is the current industry standard.
SMEs Getting Short End of the Deal
UGL reportedly told suppliers and sub-contractors that if they wish to be paid within the 65-day period, they can get the money through a reverse factoring agreement with their finance partner Greensill Capital. But in return, suppliers will have to agree to an unspecified discount on their invoices.
Earlier this year, Ms. Carnell raised questions about the use of reverse factoring and other so-called “supply chain financing” methods. She argued that these methods should not replace reasonable payment terms such as 30 days or less.
The small business ombudsman also noted the negative impacts of longer payment periods and late payments on SMEs. These situations restrict SME cash flow, which makes it difficult for them to meet tax payments, take on additional projects, and expand their business.
What the Government Can Do
Ms. Carnell believes that the government can use its buying power to push large construction companies to stick to the 30-day payment period. She says this would keep big businesses from using SMEs as cheap finance.
“Governments in Australia control something like $11 billion worth of purchasing every year and at the moment there is a significant amount of infrastructure spending in Australia by both federal and state governments,” she said.
“I think federal and state governments should use that power to make sure they contract with companies that are doing the right thing.”
When asked about this issue, Federal employment and skills minister Michaela Cash only said that the Morrison government will “continue to consult with industry and stakeholders to make sure we have the policy settings right for small business to grow and prosper”.
NSW finance and small business minister Damien Tudehope also declined to comment on the matter. Instead he said, “Governments shouldn’t over-regulate but instead create the right conditions for small businesses to thrive.”