THE Institute of Public Accountants (IPA) has welcomed the introduction of the Payment Times Reporting Bill 2020, saying its implementation will go a long way to help small businesses that are struggling with cash flow issues.

“This legislation will bring greater transparency, requiring businesses with over a $100 million turnover to publish their policies including payment times,” IPA chief executive officer, Andrew Conway said.

“We appreciate that businesses are doing it tough in this COVID-19 pandemic environment, but small businesses still need to be paid on time to help keep them afloat. 

“The ASBFEO final report on its Payment Times and Practices Inquiry [1]points to the fact that a lack of cash flow is the leading cause of business insolvency and this underscores the importance of the issue of late payments which can easily put many businesses out of operation.

“The ACCC[2] has highlighted of big businesses refusing to pay small business suppliers or in some cases, trying to renegotiate pricing that had been agreed upon after the product or service has been delivered," Mr Conway said.

“The Bill will see the establishment of a Payment Times Reporting Scheme[3] which will be reviewed after three years.  It also provides for the creation of a Payment Times Regulator.

“The Bill also allows the Regulator to publish information about a reporting entity that has failed to comply with the Act. This will provide transparency to small businesses using the register, allowing them to determine the companies they will engage with.

“As the legislation defines small businesses as those with a turnover of less than $10 million and therefore, 99 per cent of businesses, it is hoped that small businesses will get a fairer go," he said.

“The IPA has been a long-time advocate of legislating payment times, given that Australia has one of the worst records for payment times to small business compared to many other countries. 

"Hence, we support the ASBFEO recommendation that all small businesses should be paid within a 30-day time frame.  We hope that this will happen well in advance of the three-year review,” Mr Conway said.

www.publicaccountants.org.au

References

[1] https://www.asbfeo.gov.au/sites/default/files/ASBFEO_Payment_Times_and_Practices%20Inquiry_Report.pdf

[2] ACCC Commissioner Rod Sims at small business and franchising consultative committee meeting.

[3] https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6542

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By Leon Gettler >>

A LOT OF BUSINESSES have done it hard since the shutdowns and social distancing rules came in. But CreditorWatch data suggests small businesses were struggling with cash flow issues long before the coronavirus lockdown measures came into play and were unprepared for the current downturn.

Patrick Coghlan, CreditorWatch CEO, said it was all too evident that many businesses were unprepared – although not many companies would have been prepared for it.

He said the majority of small to medium enterprises (SMEs) only held a few weeks, maybe a couple of months at best, of cash reserves that can withstand a 70-90 percent downturn in revenue. 

Mr Coughlan said the data showed that small businesses were being paid 40 percent slower than the previous quarter.

“And that was for Q1 2020, so that’s pre-coronavirus,” Mr Coghlan told Talking Business. “So they were already struggling to get cash in the door before they got hit with the pandemic itself, which means there is underprepared and extremely underprepared – and it was a horrible situation for most SMEs and their directors and owners out there.to have to deal with this, as well as the already slow-paying customers.”

RIGHT ACROSS THE BOARD

Mr Couglan said the problem was right across the board, but there were some specific sectors that stood out.

He highlighted agriculture, which was no surprise as it had been hit by fires and floods in late 2019 and early 2020; construction which is always slow over that Christmas-New Year period; retail which had experienced a number of administrations taking place in November and December; transport was struggling; and a lot of professional services businesses, with many customers slowing their payments and looking to see whether they could move somewhere else.

“SMEs at the moment are doing it extremely tough and the challenge is how do they get out of it?” Mr Coughlan said. “I’ve been talking about zombie companies, companies that were struggling pre-corona.

“If corona hadn’t come along, you’d be questioning whether they would still be around within the next six months as a result of tightening cash flow, reducing margins and a reduction in profit and revenue,” he said.

HELPFUL GOVT RESPONSES

Mr Coughlan said the government sector had responded by introducing terrific measures like insolvency changes.

“What I think that does, though, is kick the can down the street so to speak in terms of directors and shareholders looking at their business and saying: ‘We probably should have wound this up in early 2020 but why don’t we take advantage of JobKeeper and why don’t we take advantage of the fact that we can trade insolvent and let’s see what happens. Who knows what will happen? It gives us six months, so let’s go with that.’ “

That said, there were plenty of signs of businesses looking for opportunities. 

Faced with revenues falling 90 percent, businesses were now coming up with new models, selling food online and marketing it through social media, or re-producing office furniture recalibrated for a work-from-home environment, or businesses creating protective gear for health workers and ventilators.

Mr Coughlan said CreditorWatch had seen a significant drop in credit inquiries in March, but in April it jumped 36 percent not only on existing customers but new customers applying for credit. This was a healthy sign.

“I think what you’ll find is suppliers, distributors, manufacturers will start to have a good sense of which of their customers are hibernating or potentially going out of business,” Mr Coughlan said.

“They’re starting to do new searches on companies that are coming to them and they’re getting a sense of which of their existing customers are healthy – and that’s all designed for them to be able to continue to trade or to start trading as soon as possible,” he said.

www.creditorwatch.com.au

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

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ASIC has amended the Corporations Act 2001 to provide an additional month for companies to lodge their financial statements.

This affects all entities with June 30 year-ends which lodge financial statements under the Corporations Act.

Importantly for listed entities, the ASX has not extended the deadline for the lodgement of Appendix 4E under ASX Listing rules 4.3A and 4.3B. This means that non-exploration entities will still have to lodge financial statements by 31 August. 

If the audited financial statements are not available by that date, they must lodge unaudited financial statements. The extensions above do not affect continuous disclosure obligations, and listed entities should continue to lodge their financial statements as soon as practicable. Where listed entities intend to rely on this extension, they should disclose this to the market, and state the reasons why they have used the extension. 

Commenting on the extension, RSM Australia national technical director, Ralph Martin said, “We welcome ASIC’s extension of relief from financial reporting deadlines to 30 June preparers. The impact of COVID-19 on business has been significant, and its effects will cause substantial challenges in preparing and auditing financial statements, including issues such as the determination of fair values, impairment assessments, and going concern considerations.

"While Australia has currently been less affected than some other jurisdictions, many Australian entities have global operations which continue to experience a high level of disruption to their operations. The deadline extension offered by ASIC is a suitably proportionate response which balances these issues against the need for timely and relevant financial information.” 

Details are:

• The deadline for listed companies is extended until 31 October 2020 (but see below in respect of Appendix 4E).
• The deadline for unlisted disclosing entities and registered schemes is extended until 31 October 2020.
• The deadline for proprietary companies and other non-disclosing entities is extended to 30 November 2020.
• Listed entities with a 31 December year-end now have until 13 October to lodge their half-year reports.

www.asic.gov.au

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