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SMEs have to stop being used as a 'bank' for big business says ASBFEO report

THE Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has called on the Australian Government to legislate to set a maximum payment time for big businesses to pay their small business suppliers.

The ASBFEO recently released findings from its Inquiry into Payment Times and Practices in Australia.

The Inquiry found widespread evidence of a growing trend for Australian and multinational companies to delay and extend payments to their suppliers with typical payment times of 30 days moving out to 45, 60, 90 or 120 days. 

“Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance," ASBFEO chief executive Kate Carnell said.

“Something must be done. Small business should never have to act as a bank for big business, helping to finance multinational companies.

“This growing trend for extended payment times impacts the economy by slowing down the flow of cash through supply chains, which limits growth of businesses because they have more capital tied up in financing their operations and it raises the costs for businesses financing longer trade credit to their suppliers.

“When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business. Poor cash flow is the primary reason for insolvency in Australia.”

The key recommendations of the ASBFEO Payment Times and Practices Inquiry are:

  • The Australian Government to introduce legislation to set a maximum payment time for business-to-business transactions. Terms greater than this can be agreed when it is not grossly unfair
  • The Australian Government to adopt a 15 business working day limit on payment terms from July 2018
  • The Australian Government to introduce legislation for large business to disclose publicly all of their payment terms and performance against those terms
  • The Australian Government to procure from businesses which have supply chain payment practices equal to or better than government terms.

Ms Carnell said the Australian Government needed to legislate a maximum payment time to set the standard on what was considered an appropriate upper limit on payment times for businesses operating in the Australian economy.

“Terms greater than this can be agreed by both parties to meet specific industry needs, however, where longer terms are called into dispute they may be considered to be an unfair contract term,” she said.

Ms Carnell welcomed the proposal for a voluntary industry prompt payment code although overseas experience clearly showed that voluntary measures did not compel all businesses to change their practices on extended payment terms or late payments.

She said although voluntary codes had been shown not to be entirely effective, minimum best practice would require a code to define a maximum payment time and contain a mechanism to automatically apply late payment penalties either through interest measures of other forms of compensation.

Also, minimum best practice would require regular, independent and public reporting to determine its effectiveness.

The Payment Times and Practices Final Report also recommends that the Australian Government maximise its role to set the standard on faster payment times to suppliers.

The ASBFEO recommended that the Australian Government adopt a payment term limit of 15 business working days by July 2018 to set an example for faster payments to suppliers.

Ms Carnell said the standard government payment term was 30 days and a study in the United States had demonstrated that faster payments through supply chains had increased annual payroll by $6 billion and created more than 75,000 additional jobs over three years.

She said that despite government prompt payment policies some government entities paid their suppliers late and many suppliers did not seek a late payment penalty for fear of antagonising the government entity.

The State Small Business Commissioners will also progress discussions on the Report’s recommendations with their respective governments.

An ASBFEO survey conducted as part of the inquiry found:

  • Around one in two respondents reported more than 40 percent of their invoices were paid late last financial year
  • Almost half of businesses have more than $20,000 owing to them from late payments and 14 percent of businesses have more than $100,000 owing
  • More than half of respondents said that large/multinational businesses “always” or “frequently” make late payments. Twenty-one percent of respondents said Australian Government departments and agencies “always” or “frequently” make late payments.

Ms Carnell said that behind the economic harm done to small-to-medium businesses from late payments there were adverse impacts on mental wellbeing through stress, anxiety and impacts on families.

www.asbfeo.gov.au 

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New fundraising power for artists

ARTISTS who use the Australian Cultural Fund (ACF) to fundraise now have new digital tools at their disposal.

All ACF artists now have access to their own personalised dashboard, giving up-to-the-minute intelligence and data about their supporters, the number of people visiting their campaign page and where those supporters are coming from.  

This unique feature gives ACF artists a fundraising edge as artists can see where their promotional efforts are having the most impact, and make informed decisions about where to invest fundraising time and energy.

An ACF spokesman said the knowledge generated by the dashboard made marketing and promotional decision making much more intuitive.

“Was your new video post really popular on a Thursday? Consider a regular #ThursdayVideo update? Is most of your traffic coming from Twitter? Might be time to schedule more tweet … Five new donors in the past few days? Message them directly from the ACF to say thanks, and encourage them to spread the word about your project …” the spokesman said.

The ACF dashboard offers extraordinary insights into current and potential supporters, and adapting any fundraising strategy to the way they are behaving.

ACF artists can also now fully integrate their ACF project page with Google Analytics.

Since Creative Partnerships launched the new ACF platform – australianculturalfund.org.au – 20 months ago, it has helped hundreds of artists raise more than $3.8 million to fund their art.

www.australianculturalfund.org.au

www.creativepartnerships.org.au

 

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Cash flow greatest problem for Aust. businesses

NEARLY 24 percent of the 200 Australian suppliers surveyed in the latest Artradius Payment Practices Barometer find cash flow to be the greatest challenge to business profitability in 2016.

“Commodity-rich countries like Australia will face headwinds in 2016 and 2017 following the decline in commodity prices,” Australia and New Zealand managing director for credit insurance provider Artradius, Mark Hoppe said. 

“While Australia is making an effort to diversify its economy, aided by its depreciating currency and the loosening monetary policy, bankruptcies for 2016 are forecast to increase by eight percent.

“Due to the vulnerability of its economy to low commodity prices, many Australian businesses have a strong focus on trade receivables management, and on protecting their cash flow and profitability against the risk of payment default arising from B2B trade on credit.”

According to the Payment Practices Barometer, 84 percent of respondents reported late payment of invoices by domestic and foreign B2B customer over the past year.

On average, half of the total value of B2B receivables remained unpaid after the due date, mostly arising from foreign trade.

The barometer also showed that Australia had the highest foreign default rate among Asia Pacific countries surveyed.

Based on responses given by Australian suppliers, a significantly larger proportion of the total value of B2B receivables arising from foreign trade (57.6 percent) than from domestic B2B trade (40.3 percent) remained unpaid after the due date.

“Besides highlighting that Australian suppliers are the most impacted by foreign late payment among the Asia Pacific countries surveyed, this finding suggests they manage domestic trade receivables better than foreign ones,” Mr Hoppe said.

“This may be the reason why more suppliers in Australia (nearly 24 percent) than in Asia Pacific (nearly 20 percent) consider maintaining adequate cash flow to be the biggest challenge to profitability this year.”

This is also likely to reflect Australian suppliers’ concerns about the impact that lower demand from China could have on their businesses.

Australian suppliers request both domestic and foreign B2B customers to pay invoices, on average, within three weeks of the invoice date. This is well below the 32 days average for Asia Pacific and the shortest observed for the countries surveyed in the region.

This may reflect an attempt by Australian businesses to counter a potential worsening of their liquidity position, due to an expected upswing in days sales outstanding, with short terms for payment of invoices.

Although nearly 30 percent of the suppliers surveyed in Australia (below the 34 percent regional average) reported that foreign B2B customers pay invoices late due to liquidity issues, foreign late payment appears to be most often attributable to reasons that are unrelated to the liquidity position of the customers.

These include the complexity of the payment procedure, inefficiencies of the banking system, and intentional slow payment as a form of business financing. each reason was cited by 25 percent of Australian suppliers.

Mr Hoppe said, “Intentionally waiting until the last minute to pay invoices as a form of business financing appears to be more common among Australian businesses compared to their regional counterparts. This could reflect Australian businesses’ concerns regarding cash flow and the desire to hold onto cash for as long as possible.

“Organisations looking to protect their cash flow and to offset the negative impact of being paid late should consider trade credit insurance. This can make up the shortfall when customers can’t or won’t pay, and lets businesses trade with confidence even in difficult times.”

www.atradius.com.au

 

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Concur offers five steps to avoid invoice fraud

INVOICE fraud cases – mostly cleverly crafted fake invoices e-mailed to  unsuspecting companies and innocently paid – are a growing concern for small-to-medium enterprises (SMEs).

Automated business management system specialists Concur argue that the problems are exacerbated by poor systems retained by SMEs, allowing such fraud to go undetected.

“SMEs are at the greatest risk of invoice fraud, especially as many continue to rely on paper-based processes and spreadsheets to complete supplier invoice administration,” Concur managing director for Australia and New Zealand Matt Goss said. 

“Invoice fraud can have significant ramifications and hamper the business’s ability to operate by stifling cash flow.

 “Some of the key signs of invoice fraud are: different bank details on invoices, bills for directory listings, advertising, domain name renewals, office supplies, or tax lodgings that the company did not order or place,” Mr Goss said. “It is important for businesses to be vigilant, review their invoicing procedures and regularly monitor invoices to avoid this type of fraud.”

Mr Goss said Concur had identified five practical tips to protect the business from invoice fraud:

1. Be cautious with new suppliers
“If the company has not worked with a supplier before, administrative staff should be extra vigilant. Take the time to check in with the person who ordered the goods, and ensure the supplier details and invoice totals match the agreed costs.”

2. Be curious and suspicious
“Run an internet search to check that the supplier is a legitimate business and look up their ABN on the government web page (www.abr.business.gov.au/Index.aspx). A simple step like calling the phone number provided on the invoice can help alert you to scams.”

3. Be wary of a change in process
“Any time a supplier notifies you of a change in banking details, company name, or address, validate the new details directly with the main contact at the supplier. Where possible, work with the person within the business that ordered the goods or services.”

4. Re-examine current invoice processes
“Review how the accounts payable (AP) team processes invoices. Assess if there are opportunities to move the more fallible, paper- and spreadsheet-based steps to a simpler, automated model. Supplier changes can be approved and monitored in an automated AP model. Aside from saving a considerable amount of time, centralising invoicing and payment details will reduce the available contact points where fraud can occur.”

5. Spend time on reporting
“Run regular reports to see what types of invoices are being paid each month, and for how much. Scrutinise what is being spent and where, and look out for abnormalities. If any big-ticket items stand out or the business has spent more in a certain category than normal, it may be worth investigating. With an automated solution, businesses can run these reports quickly and frequently. Utilising one AP platform will also let businesses spot key trends and discrepancies.”

www.concur.com.au

 

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