Late payers: the silent killer of small businesses

Come on people – pay your bills promptly

 

Large companies that treat small suppliers “with contempt” by delaying payment times are under the spotlight, with Small Business Ombudsman Kate Carnell saying the problem has become so critical that her office is seriously considering an inquiry.  Carnell says any inquiry would target the huge lags in payment times from some of Australia’s biggest and best-known corporations.

The Ombudsman, who took office in March, says the No.1 problem small businesses tell her about is the negative impact late payments have on cash flow.  Carnell pointed the finger at mining companies, large supermarket chains and transport companies, which she says have been treating small suppliers “with contempt”.

“These are the companies that have the money and the power, and they’re using their power to pay little companies slower,” Carnell said. “So those who can afford to pay are not paying on time and those who are already under pressure are doing the right thing.”

Carnell’s viewpoint was echoed by Paul Nielsen, chairman of the Council of Small Business Australia, who said many small businesses were having to fund their businesses from their personal accounts.

“They’re actually funding the big companies who won’t pay on the agreed terms. Some big companies are using small business and suppliers as a bank, and it’s wrong,” Nielsen said.

Nielsen told Fairfax that Coles Australia now requests a 2.5 per cent discount of its payment to suppliers if they wish to be paid on time, a figure Carnell has also heard.

“What we are told they are telling their suppliers is that ‘we will pay you on time but we expect a discount for the pleasure’,” Carnell says.

A spokesman for Coles said it was “standard commercial practice” for discounts to be offered in return for a shortening in payment terms.

“Consistent with both the Food and Grocery Code and our own Supplier Charter, any such outcome would be negotiated with suppliers and form part of a written agreement,” the spokesman said.

Two of Australia’s largest credit information and analysis companies, Veda and Dun & Bradstreet, confirm the trend of big companies paying late.

Veda’s survey of payment times over the past 12 months revealed that small businesses of between 10 and 50 employees were paying their invoices the fastest while businesses with more than 50 employees tended to pay their invoices at a rate 1.5 times slower than the average.

Large businesses of more than 100 employees in the information and media industry paid invoices slowest – 44 days beyond terms on average. The next worst were agriculture, forestry and fishing (30 days), healthcare and social assistance (24 days), and professional services (20 days).

Veda’s senior product manager Damien Stevens said that while the company was not privy to companies’ payment policies for suppliers, there was no doubt that large organisations were paying slower than other businesses. “There’s power in that relationship – and it’s backed up by the data,” he said.

Dun & Bradstreet’s most recent Business Expectations Survey reveals that for the first three months of 2016, businesses with between six and 19 staff settled their invoices at the fastest average rate of 40.2 days, while businesses with more than 500 employees were “flexing their muscles” and paid their invoices at the slowest average rate of 52.4 days.

Nielsen said that Woolworths was now paying at about 60 days after receipt of invoice, while Carnell says her office has reports that BHP has moved to 90-day payment terms. “Rio went to 90 and then went back to 45 but only for current contracts. But we’re also looking at the big transport companies such as Allied and Toll. Their payment times to sub-contractors can be pretty terrible.”

Asked generally about late payments, the Coles spokesman said suppliers’ terms varied but that Coles was “committed to paying for goods delivered and accepted in accordance with the relevant grocery supply agreement on time and in full, and to resolve payment disputes promptly”.

Using Veda data, Fairfax investigated the credit scores and histories of five well-known corporations.

Of the five only one had a credit score that was “average”, with the rest below average. For legal reasons, Fairfax is unable to publish the names of the companies, their scores, or the information used to compile the score but can confirm that the findings were entirely consistent with remarks made by Carnell and Nielsen.

The overall scores, including information that lists credit history, payment times, court judgments and the records of directors can be purchased via Veda’s SwiftCheck platform and through Dun & Bradstreet.

Veda’s Stevens said these reports gave small businesses a very good idea of the kind of company they were dealing with.

“Knowing that X or Y company is likely to pay on time or late is always going to help you forecast and better manage your cash flow,” he said.

You can avoid having to chase customers for money by requiring they pay upfront.  This works extremely well for service-based businesses by integrating online scheduling into their websites on on Facebook pages.  Ask me how.

 

Source: Late payers: the silent killer of small businesses