Government to force Australia’s biggest businesses to pay SMEs quickly if they want federal contracts

The Australian government has waved a stick at the country’s top 3,000 big businesses, forcing them to reveal data on how quickly they pay small businesses in an effort to stop SMEs being used “as a bank”.

And in a step further, those 3,000 businesses will also be forced to commit to paying small businesses within 20 days if they want to tender for federal government contracts.

In a speech at the Business Council of Australia’s annual dinner last night, Prime Minister Scott Morrison said there were “no excuses” for big businesses not paying small businesses on time.

“We have listened and we heard loud and clear from small business owners around Australia, and we are taking action to ensure small business is not being used as a bank,” Morrison said in a statement.

“Small businesses are the backbone of our country and they need to get a fair go.”

Along with forcing the big end of town to reveal how it pays Australia’s SMEs, the government will look to revamp its own payment terms, with Morrison pledging to cut the government’s payment times from 30 to 20 days for invoices under $1 million by July next year.

Furthermore, the government will set a target of 35% of all government contracts under $20 million being fulfilled by Australian small and medium businesses.

Morrison will encourage all Australian states and territories to adopt similar policies and has said the issue is on the agenda for the next Council of Australian Governments meeting next month.

Speaking to SmartCompany, small business ombudsman Kate Carnell praised the government’s policy change, saying it had picked up and even improved on a number of recommendations from the ombudsman’s payment times inquiry a few years ago.

“The government has understood the big end of town, including multinationals, are some of the worst perpetrators of long payment times,” Carnell says.

“Requiring them to report on their payment times is important, but it’s even more important that’s then been linked to government procurement. It’s a very good stick.”

Carnell says her office was pushing for a 30% target for government contracts under $20 million, and was pleasantly surprised to see the government push that even higher to 35%.

No risk of repudiation under Labor

With the coalition’s current polling numbers looking shaky at best, there’s a chance come early next year Australian small businesses will be facing a Labor government in power.

While leader Bill Shorten has before expressed concerns over the government’s small business tax cuts, Carnell believes there’s very little chance legislation involving payment times could be overturned by a Labor government.

“I don’t get any sense the Labor party would be supportive of multinationals paying SMEs slowly. I can’t imagine anyone would think that’s a reasonable thing,” she says.

While the new policy is welcomed, Carnell says the government should learn from the UK, who implemented a similar policy a few years back. Their policy changes led to some “gaming of the space” says Carnell, who warns the government to not allow the same thing to happen locally.

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