Carnell calls on Morrison to outlaw payment times in excess of 30 days for SMEs amid coronavirus invoice extensions

Small business ombudsman Kate Carnell has called on the federal government to outlaw invoice terms of 30 days or more to small businesses amid reports a fresh wave of big business bullies are using the COVID-19 pandemic as an excuse to skip out on timely payments.

In a statement issued Monday, Carnell named and shamed several big businesses, including department stores Myer and David Jones, for “damaging” their small business suppliers with lengthy payment times.

Findings detailed in the Australian Small and Family Enterprise Ombudsman (ASBFEO)’s final report into supply chain finance, released Monday, show some large businesses have extended supplier terms out to as long as six months in the wake of the coronavirus crisis.

“Large businesses extending, or in some cases suspending, payments to small businesses are on notice that this behaviour is unacceptable,” Carnell said.

“There’s no denying businesses of all shapes and sizes are enduring extraordinary challenges as a result of the coronavirus crisis, but small businesses are being hit hardest.”

“MYER, David Jones, Just Group, Sussan Group, Carlton United Brewery and CIMIC are named in the report as having payment policies that are damaging to their small business suppliers,” Carnell said.

The report quotes a recent East & Partners survey, which found 1,200 SME respondents were waiting on average 56 days to be paid, leading Carnell, who has previously been reluctant to recommend a legislative approach, to call for extended terms to be banned.

The ombudsman said there was no other way to “drive meaningful cultural change” when voluntary industry-led schemes such as the Business Council of Australia’s code of conduct had manifestly failed.

“Our review has revealed the voluntary Supplier Payment Code is not effective. There is no compliance monitoring and it is actually unenforceable. This is consistent with similar systems internationally,” Carnell said.

Supply chain finance — which allows big businesses to rope in third-party financiers to offer SMEs faster invoice payments for a price — has been heavily scrutinised over the last year after it emerged several large companies were bullying their small business suppliers with extended payment terms in excess of 60 days.

Carnell says there is nothing wrong in principle with supply chain finance arrangements, and they remained a viable option for firms, provided they weren’t being used to prop up payment terms in excess of 30 days, following attempts at such schemes from high-profile names such as Telstra and Rio Tinto.

Following a series of reports in The Australian earlier this year, both Telstra and Rio Tinto abandoned plans to use supply chain financing to force their SME suppliers onto less favourable invoice terms.

Carnell’s latest report, which will be sent to small business minister Michaelia Cash for consideration and (hopefully) an eventual response, recommends the Morrison government’s proposed Supply Chain Finance Reporting Framework — which will require firms with over $100 million in turnover to publicise information about their supplier dealings — be backed and overseen by an “empowered and proactive” entity.

The ombudsman has also advised Treasury, corporate regulator ASIC and competition watchdog the ACCC to cast their eyes over supply chain finance arrangements in terms of its regulation as a financial product and viability from a competition law perspective.

“Where small businesses require early funding over the coming months, supply chain finance may be a way for them to secure no-recourse payments in reasonable time frames,” Carnell said in the report.

“However, abuses of small businesses through misuse of this product must be urgently addressed, and I look forward to continuing to work with the government and the business community to ensure small businesses are supported in their funding and cash flow decisions.”