If payments were required within 30 days throughout the whole economy, financing company Greensill says large companies would need to quickly locate $65 billion in working capital. Kate Carnell, the small business ombudsman of Australia, however, called the remark “stupid” and noted “there would be a lot of businesses trading insolvent” if firms didn’t possess the necessary funds to remunerate suppliers on schedule, The Australian reported.
Creating a requirement for firms to give suppliers payments within 30 days is not feasible due to the working capital needed to make them, Greensill said in a meeting with the office of the small business ombudsman. The company, however, said it didn’t have an issue with the requirement of having payment times of 30 days to less sizable suppliers. However, the company claimed it wasn’t possible to roll out the policy throughout the wider market.
Representatives of the financing company indicated per the meeting minutes that “analysis suggests that moving to a 30-day payment term standard for DSO (days sales outstanding) and DPO (days payable outstanding) would require an additional $65bn working capital to cover that, which isn’t realistic. SMEs are a different ball game, but the rest of the market needs to work it out.”
A rise in late payers had caused Carnell to advise that the Morrison government put into law that companies have to pay smaller suppliers in 30 days. At the time, Carnell wrote in a LinkedIn post that her office saw a wave of big firms “using the COVID-19 outbreak as an excuse for poor payment times.”
Carnell wrote in the post, “Many small businesses have been forced to close their doors, and a lot may not survive the coming months, even with significant support from the government.” She continued, “That’s why it is more important than ever to ensure small businesses are paid on time.”
The official noted that the Supply Chain Financing Review points out that a number of renowned firms “have engaged in poor payment practices.”