Major corporations including Mars and Kellogg’s in Australia have been singled out by the nation’s Small Business and Family Enterprise Ombudsman for mistreatment of SMEs, likening payment practices with small suppliers to extortion, reports said Tuesday (April 4).
Ombudsman Kate Carnell is inquiring into the payment practices of top conglomerates in Australia and told reporters that she has found a pattern of these businesses squeezing their small suppliers by forcing SME loans on them, a method of ensuring those suppliers remain afloat while delaying invoice payments to the companies.
“It’s pretty close to extortion, really,” Carnell said. “Large multinational businesses’ payment terms have blown out considerably. They are now moving to have standard contractual payment times of up to 120 days. It’s really bad for midsize businesses and a shocker for the SME space.”
“It will kill SMEs, ”she added.
According to Carnell, when a business takes 120 days to pay its supplier, the company also offers financing to that small business.
“I must admit, I thought it must be an unusual scenario, but now we have seen this sort of approach is quite systemic,” she said, singling out Mars, Kellogg’s and Fonterra, as well as mining, construction, consumer goods and other industries as perpetrators of this practice.
While SMEs are being offered loans at a favorable rate compared to market averages, Carnell said the behavior is not beneficial to SMEs. Chief executive of the Council of Small Business Australia Peter Strong agreed, calling the practice a “rip-off.”
“It’s worse than I thought,” he stated, adding that these large companies “are using the system they have created to their own advantage and to the disadvantage of small businesses.
“I’m quite worried that it’s a deliberate structural thing to leverage more money out of the system,” added Strong.
In a statement, a Mars spokesperson said the company “understands the concern,” while Fonterra said it “takes the needs of smaller businesses into consideration.” Kellogg’s statement pointed to the potential of this kind of supply chain financing to benefit SMEs.
The statements from Strong and Carnell follow new data release only weeks ago from Xero that SMEs in the nation are owed $20 billion in unpaid invoices. Earlier data from the company showed that nearly two-thirds of SMEs surveyed said they had an overdue invoice by at least 30 days in the last six months, with analysts pointing to their large corporate buyers as the main culprits.