The Australian government has acknowledged that extended payment time is one of the causes of poor cash flow especially for small businesses. In the earthmoving industry, for example, companies have difficulty chasing bad debts because payment terms are extended until 90 days when industry-standard is only between 30 and 45 days.
The 90-day payment time is not unique to the earthmoving industry. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has found that Australian and multinational companies are increasingly delaying or extending payments to small business suppliers to 45, 60, 90 or even up to 120 days.
To address the issue of extended payment time, new rules will be rolled out January next year, according to the Morrison government. To help them improve the framework, the government is asking businesses with more than $100 million in annual turnover to publish information relating to their payment times and practices. About 2,500 businesses will be affected. Among these are government corporate entities and foreign companies.
The new rules will take effect 1 January 2021 and would require large businesses to report within three months after the end of a six-month reporting period. What the large businesses would report is how quickly they say they will pay their SME suppliers and how quickly they actually pay. Large businesses will also be required to report if and how they use supply chain financing arrangements.
The payment times reporting information can be accessed through a public website by small businesses and other stakeholders. If businesses do not comply with the framework, meaning they don’t disclose their information, they could be subject to daily penalties.
As an example, individuals will be fined 60 penalty units for failure to report, notify regulator of changes and comply with a notice of audit, while corporations will be fined 300 penalty units for the same non-compliance. Individuals will also be fined up to 200 penalty points if it fails to provide an auditor with assistance and keep records. A body corporate will be fined up to 0.2 percentage point of annual turnover for the same non-compliance.
“Cash flow is king for small businesses, ” according to small business ombudsman Kate Carnell. She welcomed the framework and its potential impact on cash flow for small businesses. “This framework will require big businesses to be upfront and honest about the time it takes to pay small businesses, to help small businesses choose who they supply,” Ms Carnell said.
The Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia, which represents over 200,000 professional accountants, criticised the proposed legislation as uncertain. Specifically, the CA ANZ and CPA Australia pointed out that the legislation does not specify how to identify small business, how businesses will be reporting, what false and misleading means, and who the regulator will be.
The group also noted that the Australian Taxation Office (ATO) was not able to participate in co-designing the process involving simultaneous development of administrative guidelines to assist in the implementation of a proposed tax law.
Minister for Employment, Skills, Small and Family Business Michaelia Cash said the new framework is essential to encourage fairer and faster payments. “Slow or deliberately delayed payment times have a significant impact on small business cash flow and viability,” Ms Cash said. “Big businesses pay their small business suppliers late more than 50 per cent of the time.”
You can read more of the draft legislation here:
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