A voluntary code of practice to pay SMEs within 30 days has been launched by Australian businesses eager to promote self-regulation and “cultural change” rather than have legislation imposed on them. But the ’30-day’ requirement leaves wiggle room for longer payment terms.

The Business Council of Australia (BCA) unveiled the Australia Supplier Payment Code at the end of May with 32 signatory companies, including the major banks, Telstra, Coca-Cola and Qantas. The code also commits corporates to helping suppliers implement new technology and invoicing processes and contains provisions for dealing with late-payment disputes.

The BCA said the code is “at the centre of a new age of co-operation and mutual respect between businesses – big and small”. It will “in some cases” more than halve payment times to SMEs “and help improve the viability and vitality of small business”.

The Council of Small Business Australia (COSBOA) has endorsed the code, saying “This should create positive change in the business community.”

However, section 1 of the code says that small business suppliers should be paid within 30 days, “or on mutually agreed terms, or on terms that are consistent with a standard industry practice”. It explains in a footnote that “mutually agreed terms” should not be “grossly unfair to one party”. To recognise payment practices within the construction industry, the code calls for 45-day terms.

Signatories to the Code commit to:

  • Pay small business suppliers within 30 days (subject to conditions)
  • Pay all suppliers on time
  • Provide clear guidance about payment procedures to suppliers
  • Work with suppliers to improve invoicing and payments practices
  • A process for resolving payment disputes and complaints (see link to guidance note)
  • Basic reporting on company policies and practices in place to comply with the Code

Blistering attack on large company payment practices

The code is launched a month after a blistering attack on large companies’ payment practices by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell. On releasing the findings of her inquiry into the matter, Carnell said, “Small business should never have to act as a bank for big business, helping to finance multinational companies,” The Sydney Morning Herald reports.

Carnell revealed that almost half of the small businesses responding to her inquiry were owed more than A$20,000 in late payments, while 14% of companies were owed more than A$100,000.

“We put due dates on our invoices and to some extent I see no point on putting a due date on as nobody ever looks at it, they pay when they feel ready,” she said.

Carnell called for legislation to set a maximum payment time and for the Australian government to commit to paying suppliers within 15 working days by July 2018.

The Ombudsman was scathing about business that impose longer payment terms while offering supply chain finance arrangements. “What’s being put by these companies is, ‘In your contract is 120 days, but we have an arrangement with the bank where you can get a loan and we can organise that at a few percentage points lower than the market and we are using our size to deliver that – so aren’t we good?’ The only reason small businesses need the money is they are being paid really slowly.”

The BCA had told the Ombudsman’s enquiry that there should be a voluntary payment code but Carnell dismissed the suggestion, saying, “We think a voluntary code will be signed by the good guys and those that aren’t will just ignore it. That’s what happened in the UK.”

Carnell said last week, however, that the code was “a step forward”, adding that she will review the code regularly. “It’s one thing signing one of these and it’s another thing delivering it,” she said.

BCA head Jennifer Westacott said “This is about getting a behaviour change – not getting a piece of law in place. It’s something that has come from the companies themselves wanting to get ahead of this sense of frustration of small business with payment terms.”