The Business Council is developing a national voluntary industry code that would ensure small business suppliers are paid within 30 days of issuing a correct invoice.
The industry-led initiative is recommended in the Business Council’s submission to the Small Business and Family Enterprise Ombudsman’s inquiry into payment times and practices.
The Business Council wants to develop such a code in partnership with the Ombudsman and other industry associations, particularly those representing smaller businesses.
The Ombudsman’s inquiry is considering a range of possible measures to address problems with late payment of invoices and lengthy payment terms, which are sometimes up to 120 days.
Business Council chief executive Jennifer Westacott said the voluntary code would provide a framework for better relations between small and large businesses.
“Large, medium and small businesses are deeply connected, meaning the long-term success of one depends on the success of the other, as does Australia’s overall prosperity,” Ms Westacott said.
“Our research shows activity between large, medium and small businesses is already worth $520 billion a year, so when we work together more productively, it will not only benefit us, it will benefit the Australian economy as a whole.
“Although average payment times have fallen across the economy, many small businesses still report that they are facing unsatisfactory delays in payment.
“It can be tough on small business owners when payment terms are unduly extended or a purchaser pays late. Those effects flow on to the rest of the community because it makes it harder for them to grow.
“A voluntary, industry-led effort to drive change in payments culture and practices should be given time to work before any consideration of regulation, which would impose extra costs on all business and taxpayers.
“We need a culture of cooperation, not compliance.”
In signing up to the code, companies would commit to: prompt and on-time payment of small business suppliers; clear guidance to suppliers about the company’s payment procedures; working with suppliers to improve payments and invoicing procedures, including through use of technology; fair and accessible dispute resolution processes, and reporting on performance against the code.
The code will be finalised in consultation with industry and government and will learn from similar approaches in the United Kingdom, United States and other jurisdictions.
Peter Strong, chief executive of the Council of Small Business Australia, which represents over 350,000 small businesses through its association members, said: “The relationship between businesses of all sizes is normally good but there is a real problem in payment times that needs to be addressed and I congratulate the BCA on this initiative. Only time will tell how well it works but given our mutual needs for simplicity of regulation and changes to company tax we have confidence in getting change.”
Ms Westacott said many large companies were already leading the way by adopting policies and technologies to pay small business faster. For instance, BHP Billiton entitles small businesses to be paid within 30 days. These practices need to become more widespread.
“We believe the code will raise awareness of the importance of prompt payment and lead to widespread, demonstrable improvement in payment times and practices,” Ms Westacott said.