Australia is in the midst of an aggressive push against late supplier payments. This week, the nation's Small Business and Family Enterprise Ombudsman Kate Carnell called out major conglomerates including Kellogg's and Mars for their supplier payment practices, likening them to "extortion." Together with the Council of Small Business Australia, regulators are looking to ensure small suppliers get paid on time and are able to emerge from a debilitating pattern of late payments, debts and cash flow crunches.
Amid this regulatory focus on late B2B payments, American Express and Australian SME accounting platform Xero released a new report to provide hard data on how delayed supplier payments are impacting the nation's SMEs — and why mid-market firms are culprits, too.
A survey of 355 chief financial officers (CFOs) at companies with between $1.5 million and $230 million in annual turnover found that nearly a third of their supplier invoices cannot be reconciled at least every other month. The research, conducted by American Express Australia and Xero, concluded that late payment practices are "endemic" across mid-sized businesses.
"There is no doubt that suppliers rely on timely payment," said Martin Seward, VP, Small & Medium Enterprises at American Express Australia, "with many going as far as to offer financial incentives for early payment."
He cited the more than half of mid-sized businesses surveyed (54 percent) that were able to save a collective $1.84 billion by paying suppliers early last year — an "encouraging" trend, the executive said.
"It's encouraging to see that businesses and their suppliers can both benefit from preferential payment arrangements," stated Seward, "but concerning that not all Australian mid-sized businesses recognize the value of timely payment — both to their suppliers and their own business."
Nearly all of the CFOs surveyed (94 percent) said they would value the ability to pay suppliers on time. But cash flow issues are hampering that ability, the data suggested. More than a third said their top cash flow concern supplier payments, more so than the concern over the ability to pay staff and declining profitability.
Further, 84 percent said they believe large conglomerates hold too much negotiating power when it comes to settling supplier invoices. The vast majority of SMEs deploy payment terms of 30 days or less with their own suppliers, the data found, but larger companies often deploy payment terms of 60 days or longer. Some businesses won't pay their suppliers any earlier than 120 days after receipt of an invoice.
Sixty percent of CFOs surveyed said their businesses wouldn’t survive if their invoices went unpaid for more than three months.
"Many big businesses require smaller peers to pay invoices within seven days, while taking weeks or months to pay their own bills," said Xero Australia MD Trend Innes in an interview with Dynamic Business. "This inhibits the ability of small businesses to pay suppliers, staff and themselves, plan for the future, and in some cases, it puts them at risk of insolvency."
The executive pointed to data in the survey that found 83 percent cite red tape and procedures as the main culprits for large companies delaying payments, while 78 percent said large businesses use their "weight" to defer payments as long as possible.
"A level playing field is one where big businesses abide to the same payment terms as they require of their small business suppliers," continued Innes. "It'll give Australian small business owners a fairer shot at building health, sustainable businesses."
He added that Xero is in favor of a government-supported supplier payment code, a voluntary measure like the on deployed in the U.K. that would see large companies promise to pay invoices in a timely manner.
Businesses surveyed by American Express and Xero seem to agree. The majority (86 percent) said they are looking for the government to do more to address the issue of late B2B payments, while 79 percent would support a federally supported effort to reduce supplier payment terms.