“Discounts for early payment have been an historic feature of trade negotiations, but the new platforms offering supply chain finance, often backed by powerful artificial intelligence, have brought an insidious new front to the war small businesses are waging to get paid within a reasonable time frame,” the review said.
The ACCC is already examining allegations about some companies’ payment terms, and whether they raise concerns under Australia’s competition and consumer laws. They include concerns about whether some agreements include unfair contract terms, or involve misleading and deceptive conduct.
“We are concerned where small businesses may feel they have little bargaining power when dealing with large customers, and that they must accept payment arrangements even where more favourable terms have previously been agreed,” an ACCC spokeswoman said.
CIMIC, along with Woolworths, Downer EDI, Coles Group, Gupta Family Group Alliance, Microsoft, Pacific National and Vodafone, were contacted by the ombudsman to discuss the schemes. None have responded, the ombudsman said.
Companies that did respond included BHP, Boral, Nestle, Telstra, Visy, Wesfarmers and Westpac. Supply chain finance providers Greensill, Fifo Capital and C2FO also engaged, but accountants Deloitte and Ernst & Young did not.
Shifting definition of ‘small’ business
The Business Council of Australia’s supplier payment code, which commits companies to paying small businesses within 30 days, was found to be “fundamentally flawed” because it is voluntary and does not clearly define the size of a small business.
Some companies have been characterising small businesses as “fewer than 20 employees” to avoid complying with the supplier payment code, the review found.
The ombudsman wants a formal definition of small business to be adopted across government, suggesting it include businesses with around 100 employees.
Telstra said on Tuesday that it supported a standard definition after scrapping its supply chain finance scheme amid rising regulatory and media scrutiny and committing to paying suppliers with invoices up to $2 million annually within 20 days. Rio Tinto also said this week it would change its payment practices and start paying suppliers with annual revenues of up to $10 million in 20 days.
Governments are also cracking down on agencies that delay payments, with Western Australia’s Water Corporation last month ordered to pay bills within 28 days after the Financial Review revealed it was also pushing suppliers to use a supply chain finance scheme.
The agency that will administer the Federal government’s upcoming payment times reporting framework, which will require big companies with more than $100 million in annual revenues to disclose exactly how they pay small businesses, should have investigative powers, the ombudsman said.
The ombudsman is seeking public comment on whether a 30-day mandatory supplier payment code is needed, and whether auditors should be given formal guidance on how companies should report their use of supply chain finance schemes to avoid hiding cash flow problems.
It also wants to know whether small businesses should receive copies of the contracts between proponents of supply chain finance schemes and other parties. Comments are due by the end of February. A final report is scheduled for late March.
Some $115 billion of payments to small businesses are late every year, according to research from Xero small business insights.
