Earlier this year we wrote about the Payment Times and Accuracy Inquiry by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), which is meant to investigate and address an apparent epidemic of late payments by larger businesses to smaller suppliers. Findings showed that small businesses are collectively owed approximately $26 billion dollars in unpaid debts at any given time. This has resulted in reduced profitability and financial stability for affected businesses, which made up about 70% of all small businesses polled.

Productive time

In response to this, Business Council of Australia, with the endorsement of the Council of Small Business Organisations of Australia launched the Australian Supplier Payment Code. This industry-driven initiative marks a seismic shift in the relationship between large and small businesses in Australia, and seeks to address these concerns without direct government intervention.

What is the Australian Supplier Payment Code?

The initiative is a voluntary measure in which large businesses commit to a set of best-practice standards designed to ensure timely payment to small business suppliers. Specifically, signatories agree to pay all eligible small business suppliers within 30 days of receiving a correct invoice.

Besides this, big business also commit to providing support to smaller partners in implementing new technologies and practices to improve efficiency and to provide faster invoicing and payment. Lastly, it lays out a “clear and fair process” for addressing and resolving disputes about payment times.

Many big businesses are stepping up

Of course, an initiative like this isn’t likely to make a big impact if major businesses don’t subscribe to it. This does not appear to be a problem in this case, however, with initial signatories including many of Australia’s Top 50 corporations such as National Australia Bank, Westpac Group, Qantas, BHP, Suncorp Group, and others. This strong initial leadership by so many exceptionally powerful brands will help to drive further adoption of the new payment code. Specifically, it will create an environment where businesses have an incentive to sign on to the measure in order to retain the best suppliers, who can now more easily identify other potential clients who will treat them fairly.

Why is big business being so forthcoming?

It may come as a surprise that big businesses would so readily work with their smaller partners to address the inequities in the current system. The fact is, though, that the ASBFEO’s inquiry has uncovered an issue that clearly demanded action. By acting quickly to address the problem through voluntary measures, the Business Council of Australia and large corporations hope to avoid direct government action and regulation. Regulations require expensive oversight to ensure compliance, and generate paperwork that no business of any size is ever happy to manage.

This move promises to improve conditions without significant government interference, which helps to keep operations as efficient as possible. Moreover, a more financially stable and secure small business sector brings secondary benefits to the larger businesses that work with them. Specifically, it creates an environment where small businesses can provide better and more consistent products and services.

How does it help small businesses?

To a layperson, slow payment times may sound like an annoyance rather than a serious threat. For small businesses, however, late payments can mean missing out on growth opportunities, running out of stock, being unable to properly serve another customer, or losing vital employees. Hedging against these risks means being risk averse and financially conservative, which interferes with their ability to compete against larger businesses. Moreover, many business owners who consistently deal with these issues report stress and anxiety-related health conditions, which can also interfere with their ability to run their business effectively in the long term.

The Australian Supplier Payment Code aims to change this by modifying the power-relationship between small and large businesses. It recognises that small business success is a critical component of big business success, and seeks to reflect that in its results. Implementation of this code will halve payment times in some cases, giving these smaller businesses the financial security they need to implement growth strategies on secure financial footing. That will work to make them more secure and viable, so that they can provide better and more reliable services to their clients and more and better jobs for their employees.

By getting ahead of the government to address the issue of payment times to small businesses, big businesses, the Business Council of Australia, and the Council of Small Business Organisations of Australia are working to create a fairer business environment while potentially avoiding additional red tape. This is an encouraging step, and may lead to improved outcomes for Australian businesses of all sizes, while also strengthening the economy in general.