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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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SME borrowings critical – Mullins

THE fallout of the Global Financial Crisis (GFC) and the uncertainty surrounding world markets is also leading major banks in Australia to move away from providing funding to the SME market, according to research by Mullins Law. 

“Unless the facilities can be supported with real property to a maximum lend of 50 percent of the value, they are not interested,” Mullins Law partner David Williams said.

“There is currently a vacuum developing within the marketplace and opportunity for investors to enter this market. In the construction market for apartments and other commercial activity there has already developed mezzanine funding alternatives to rescue the developers.

“For the SME market, it is not a question of what interest rate the SME market may pay, but more the availability of funding in the first place as it is not otherwise available.”

Mr Williams said the SME market was also now witnessing the emergence of the high-net-worth family businesses that are seriously looking at filling the gap in providing funding to the SME market.

Another factor was the successful listing of ‘factoring’ – now known as debtor finance – specialists Scottish Pacific in July, on the back of several successful acquisitions such as former rival Bibby.

“In any event, there are already new entrants in the funding market that are emerging which need to be seriously looked at by the SME market,” Mr Williams said. “The major banks may, in the future, rue the day that they did not seriously engage in looking after the SME market.

“Institutional private equity is concentrating at the big end of the market where they are looking at takeovers of underperforming public companies, therefore there is an enormous gap in the true private equity model that is built upon family business wealth.

“This opportunity may become a major contributor to the Australian capital markets in the near future,” Mr Williams said.

www.mullinslaw.com.au

 

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EY report: DNA of the CFO being redefined

THE role of the chief financial officer (CFO) is being morphed and challenged by ‘disruptive forces’ according to a new report by global business advisory group EY – and nowhere is it being felt more powerfully than Australia.

For example, more than 80 percent of Australian and New Zealand CFOs expect to take on more strategic responsibilities -- significantly higher than the global average of 64 percent – and about half these CFOs say they need to build their digital understanding. Yet the report flags concerns by most CFOs that neither they nor their teams currently possess the capabilities this new role will demand, 

Traditional career paths are changing dramatically, with EY’s report showing only 40 percent of CFOs globally are now qualified accountants.

EY’s The DNA of the CFO 2016 report, based on a survey of nearly 800 finance leaders worldwide, found that digital innovation, the proliferation of data, new regulations and increasingly demanding stakeholders are combining to disrupt and reshape the CFO role.

EY Finance Management Consulting leader for Oceania, Donal Graham said finance staff needed to be given access to much broader experience and greater development opportunities to help address worrying skills gaps.

While 82 percent of CFOs surveyed across Australia and New Zealand expected they would be asked to take on wider operational leadership roles, beyond finance, in the coming years, this trend towards increased responsibilities is already evident, with 58 percent of local CFOs surveyed spending more time defining and developing the overall strategy for their company than they did five years ago.

In this environment, it is concerning that 62 percent of local CFOs say the current finance function does not have the right mix of capabilities to meet future strategic priorities (compared with 47 percent globally).

“In EY’s first The DNA of the CFOstudy, conducted in 2010, we painted a picture of a role that had already broadened to encompass not only traditional financial skills, but also more strategic and market-facing responsibilities,” Mr Graham said.

“Six years on, our latest CFO research study has found that change has accelerated even more rapidly than many would have thought possible.

“While this presents an opportunity for CFOs to really shape the contribution they make to the business, it also means that those who don’t proactively redefine their role may be at risk of failing to provide the financial and strategic leadership their organisation needs,” Mr Graham said.

“Australian and New Zealand organisations should be considering more investment and sophistication in the managing of finance talent and matching staff to the right opportunities to help equip them for more demanding and complex roles.”

 

MORE DATA ACCESS

More than half (54%) of local CFOs surveyed said they are now spending more time providing analysis, such as data-driven analytics and strategic risk assessments, to support the CEO and senior leadership team.

“Finance chiefs are being required to evaluate their organisation’s investment in digital, challenging them to find new metrics to measure business cases and return on investment,” Mr Graham said.

“As they upgrade technology and move to cloud-based systems, finance departments have access to more data than ever before. However, it seems many local finance teams may not yet be particularly well-equipped to interpret this data and draw out insights to help truly inform strategic decisions.

“In fact, 54 percent of Oceania CFOs admit they need to build their own understanding of digital, smart technologies and sophisticated data analytics. So this is clearly an area that requires further focus.”

 

MANAGING RISK

More than anywhere else in the world, Oceania CFOs believe risk management needs to be more of a priority, with two-thirds (66%) saying this will be a critical finance capability in the future – compared with a global average of 57 percent.

“To some extent, local CFOs are acknowledging they need to catch up. To date, Australia and New Zealand haven’t been subject to the same level of scrutiny around regulation and risk management as many other parts of the world – particularly the US, where the financial crisis placed an intense focus on risk management,” Mr Graham said.

“However, local CFOs are starting to acknowledge that risk management needs to go beyond mere compliance and integrate more fully with the overall business strategy.

“New corporate management technologies are enabling more sophisticated stress testing of business plans and associated risk weighting. CFOs need to be able to leverage those tools to monitor assumptions in the strategic plan, and be ready to pivot the business strategy if the assumptions no longer hold.”

 

CFO DNA CHANGING

In such a fluid environment, defining the skills and qualities necessary for success as a CFO is a moving target, according to Mr Graham.

“Pinpointing exactly what makes a successful finance leader is becoming increasingly challenging as the role continues to evolve, but it’s fair to say the traditional chartered accounting career development path is insufficient to equip CFOs for the new challenges they are facing,” Mr Graham said.

“In fact, the survey found a marked difference between the career paths of CFOs globally and those in Oceania. Only 40 percent of CFOs surveyed globally had a professional accounting qualification.

“This is in stark comparison to Australia and New Zealand, where the vast majority (88%) hold a professional accounting qualification. In contrast, global CFOs were more than twice as likely as Oceania CFOs to have MBAs.

“The business environment is more complex, interconnected and unpredictable than ever. Digitization, data, stakeholder scrutiny and risk volatility are changing the rules of the game and CFOs, like all leaders, need to adapt to this increasing complexity, focusing on the attributes and skills that their companies will need to succeed in the future,” Mr Graham said.

“Finance leaders should be taking pre-emptive steps to future-proof their role and expand the finance functions capabilities, or run the risk of being marginalized from the senior decision-making circle.

“The most successful CFOs will be those who can proactively shape their role in response to the major forces transforming the business environment.”

EY’s DNA of the CFO report: Do you define your CFO role? Or does it define you? surveyed 769 finance leaders worldwide, including 50 respondents from Australia and New Zealand, between December 2015 and February 2016. The survey results were supplemented by individual interviews with 21 CFOs from leading organisations.

www.ey.com

 

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Bank website to assist SME loans

THE Australian Bankers Association (ABA) has established a website to assist small businesses in obtaining bank loans.

The move has come in reaction small-to-medium enterprises (SMEs) complaints since the Global Financial Crisis of challenges in obtaining bank finance. The banking industry claims loans to the sector are dramatically on the rise.

“Banks approved $88 billion in new small business loans last year, which is $11 billion more than two years ago,” ABA chief executive Steven Münchenberg said. 

“While banks’ lending to the small businesses sector is strong, we recognise that for some small businesses being able to access finance is still a concern. To help with this, we have developed a new website that explains what banks look for in assessing loan applications. It also shows how different types of finance may suit different small businesses,” he said.

The website – financingyoursmallbusiness.com.au – was developed in conjunction with CPA Australia and with the support of the Council of Small Business Australia (COSBOA) and NSW Business Chamber.

It features a step-by-step guide to completing a loan application, with particular emphasis on preparing a business plan.

CPA Australia chief executive Alex Malley said the ability of small business to articulate the how and why of their venture is extremely important to the success of their loan application.

“If we have small businesses growing, spending on new plant and equipment and expanding their markets, then they are sustaining and creating jobs and that’s precisely what our nation needs,” Mr Malley said. 

COSBOA CEO Peter Strong said, “This is a great initiative by the banking industry and will help people who want to start, buy or expand a business save time and stress.”

NSW Business Chamber chief executive Stephen Cartwright said, “For small to medium businesses having access to finance is crucial to their success. Having this resource for SMEs to understand the right type of finance for their needs will help maximise their potential and in turn, help Australia’s economy to grow."

Mr Münchenberg said over the past couple of years the ABA has worked with COSBOA and CPA Australia to better understand the issues faced by small businesses.

“We realised that small businesses would benefit from guidance on how to present information in a loan application that goes beyond just providing the company accounts,” he said.

www.financingyoursmallbusiness.com.au

 

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