Payment Times Reporting Bill 2020, Payment Times Reporting (Consequential Amendments) Bill 2020 Second Reading Speech

11 June 2020

There were many times in my 25 years in business that I felt like a bank. Small businesses often feel like a bank, a lender to big business, but I have to say the thing we do wrong is we don't charge interest. That's the big difference and the price that small business pays, depending on the clients that they choose—I will come to the issue of whether you choose your clients or they choose you. Being paid within 30 days, even by government agencies, was an absolute miracle; 60 days or 90 days was something you came to think of as acceptable. Sometimes at this time of year, in June, I'd be chasing payments, hoping to get the money in the door before the end of the financial year. Small-business owners are multiskilled but often that means you do last the things you like least. So, when I did get around to following up on a long overdue invoice, I might be told, 'Oh, it's just missed the processing date,' or, 'Oh, it's with accounts,' and all sorts of time-buying excuses. Sometimes there was human error and sometimes the error was mine, but when you're looking in your MYOB or your Xero at what is in your account there, versus what's actually in your bank account, looking at what's owed to you, versus the cash you have in the bank, it is absolutely no comfort when the rent is due or the BAS payment, or the repayment on your truck or the salaries are due. That is the dilemma you face. Every small-business owner understands that cash is king. You can have all the turnover you like, you can have all the revenue in the world, but without that money landing in your bank account you can't survive, let alone grow. Unlike big business, small business doesn't have a lot of other ways to increase working capital. We don't use the bond market. We can't raise equity. It's really about what is in the bank.
My experience of a quarter of a century as a small-business operator is the lens through which I'm looking at this legislation. I look at it with the eyes of the people who operate earthmoving equipment, the consultants, the caterers and the construction framers, all those who in good faith spend time tendering for or pitching for work from big business, who deliver that work and then—well, then they wait. They don't like to complain and they don't like to be difficult, because they want more work from those same businesses. They patiently wait, sometimes to their own financial detriment. So I do support the Payment Times Reporting Bill. We will be supporting it as a step in the right direction, but I have to say that I think it's a baby step.


It's worth understanding exactly what this bill is about. The bill requires around 3,000 large businesses and government enterprises with annual turnovers of $100 million and above to publicly report twice a year on their payment terms and practices for their small business suppliers. By 'small business' they are talking about businesses that turn over less than $10 million a year. That is what the legislation is about—not requiring certain payment terms and not enforcing limits on how long businesses can take to pay small business, but asking them to report on what they do, and there are financial penalties if they fail to report. That's why I call it a baby step. It's obviously a good thing to have information and reporting, but without anything else I question the effectiveness of it as a way of encouraging big companies to do better by small businesses.


The government believes that greater transparency will create pressure for cultural change to improve payment times. Certainly, work on a similar reporting framework was begun with Julia Gillard as Prime Minister. COSBOA's Peter Strong has reminded us of that, and there is some validity to that argument. But the Morrison government also has a view that the information will help small businesses make more informed decisions about their potential clients and help them to choose their potential clients. I don't know what world the Liberals live in when they think that small businesses have the power to go out and choose their clients. They claim to be the only people in this place who understand small business, because someone on this side of the House, on the Labor side of the House, could not possibly understand small business! Yet, many of us have spent decades working as small-business owners. They need to revisit that self-belief, because what this legislation shows is a real lack of understanding of small business. It is an enormous missed opportunity to do something tangible to help small businesses. My small businesses are going to laugh when I say, 'Well, the government's tried to help small business by putting in a reporting mechanism.' They are not going to see it as being of any use to them. I think it's going to be some time before we get to a point where it's actually even going to be a useful piece of data. Most small businesses will tell you that in a lot of cases you don't have the luxury of shopping around for a client. You have to be really well established, with a strong pipeline of work and long-term loyal clients, to spurn someone on the basis that they may take a long time to pay your invoices. So many of them take a really long time. Some of the biggest companies or government agencies I've worked for, and loved working for, have been the worst payers.


The belief that small business can pick and choose clients is the sort of thing that doesn't understand the power imbalance that large businesses have over their smaller suppliers and contractors because of their size and their status. The Small Business and Family Enterprise Ombudsman, Kate Carnell, echoes this view in saying:


We support the Payment Times Reporting Framework as one piece of the puzzle, but it won't solve the problem of late payment times on its own.


Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy.
I agree. In my experience, the best way to get a big company to do the right thing is to make it a rule.


I do note that the Business Council of Australia already has a voluntary but unenforceable supplier payment code, which is a non-binding pledge to pay small businesses within 30 days of invoice. I also note the concern that the BCA has—that one of the unintended consequences of this legislation might be to encourage large businesses with best practice payment times of, say, 21 days or less to extend their payment times to 30 days. I think this is the sort of thing that needs to be considered by a Senate committee, along with questions about what it means in terms of red tape for large enterprises. I'd agree with the BCA that a one-size-fits-all policy for every industry may not be the way to go, as it doesn't take into account industry-specific circumstances. I recognise we need a piece of legislation that works for both parties, but this was the chance to start to even the playing field for small business, and that chance, I think, has been lost.


We also have the right to ask the question put by the Australian Small Business and Family Enterprise Ombudsman about the government's planned resourcing for the scheme—that it may not be enough. The regulator can be as little as one public servant, without support staff. I don't think you can talk about any payment terms for small business without mentioning supply chain financing and reverse factoring. This is where small businesses essentially pay to have their invoices paid in a timely way. It is not fair to ask small businesses to pay a fee so they can be paid on time. I'm pleased that the shadow small-business minister, the member for Gorton, has taken action on this with the ACCC, who have confirmed they are reviewing the arrangement of some large firms' use of reverse factoring. Third-party financing must not replace reasonable payment terms being offered by large businesses. As the ombudsman says, it's not acceptable for large business to use small suppliers to optimise its cash flow.


So I end where I started—with small business being the financiers of large business. I welcome this one small step for transparency, but I'd prefer to see one giant leap for fairness for small business.