Cash flow is the life blood that keeps business healthy. Late payment is like lacking vitamin C, it weakens blood vessels & saps energy.
November 23, 2018
Late invoice payments are like a body having a lacking in vitamin C that slowly weakens blood vessels, saps energy and eventually kills the host. Cash flow is the life blood that keeps a small business healthy.
This is why we welcome the announcement by the Prime Minister for action on late payment from big business to small business – see here.
So - cash flow. Simply put a business must have enough cash in the bank to pay its debts.
A business can be successful and solvent with a lot of assets but due to circumstance, late payment of invoices being a major issue, they cannot meet their financial obligations.
Depending on the business these obligations include, roughly in order of importance, payment of: wages, rent, suppliers, superannuation, servicing loans, GST and PAYE, annual licenses and fees, power, themselves and ancillary costs.
We in small business don’t expect to be paid immediately, although those in retail do pretty much get paid immediately if they have cash or credit transactions with customers. If we deliver goods or services to others, we will often send an invoice and wait to be paid. Payment in 30 days is pretty much the accepted norm for payment time. Most small businesses pay other small businesses in time, we get embarrassed if we don’t because we are people dealing with people. Those small business people who don’t pay on time quickly get a bad reputation and are asked to pay up front because of this lack of trust.
But in Australia our payment times have grown and grown to the point where some big businesses have stated that they will pay on 120 day terms. Extraordinary abuse of power.
This places enormous personal stress on small business owners and their families. Some of the businesses that push payments well beyond 30 days have plenty of cash so why do they push payment times to small business families out to such extremes?
Greed is why. They understand that instead of paying their bills like good responsible businesses they can invest other people’s money into the short-term money market and make more money. They treat their small business suppliers as if we were their own personal banks offering them, the big business, interest free loans.
In several cases the big businesses go so far as actually offering loans to the small businesses in their supply chain to help tide them over until they, the big business, pay them. These big business blood suckers justify that behaviour by saying they charge low interest rates on the loans.
Let me summarise their behaviour again – these very large businesses refuse to pay their debts for up to 120 days so they can invest the funds that rightly belong to a small family into the short term money markets. These big businesses are corporate thugs and bullies.
So, the announcement by the PM Scott Morrison, supported by the Small Business Minister Michaelia Cash, that there will be a crack down on big business that pay late is welcome news indeed.
And it is a clever announcement. No complicated legislation needed. The government has stated they will not award federal government tenders (worth over $20m is my understanding) to businesses that do not pay their supply chain members on time. Thank you very muchly for that. Here is more information.
It may take some time to get the cultural change needed in big business but it will happen.
On this note we should remember that COSBOA has been pushing the late payment barrow for well over 8 years. One major reason why the change is occurring is the fabulous work of Kate Carnell and her team at the ASBFEO. Thank you very muchly for your work. See more here.
The Business Council of Australia (BCA) must also take credit for its work on this issue. They work very closely with COSBOA on an Australian Supplier Payment Code. The great majority of their members signed up to the code, but sadly and disappointingly, enough didn’t sign up and that caused doubt to be raised over its impact.