JULIE COLLINS:
Today we're announcing our response to the Payment Times Review. It's really important that small businesses are paid on time by big businesses. We know that many big businesses do the right thing, but there are some big businesses that don't. What we're trying to do here is to make sure that big businesses actually pay small businesses in 30 days or less. This is so important to small businesses’ cashflow. Small businesses are contributing $500 billion a year to our economy, and employ over 5 million Australians. It's really important that they can manage their cashflow, so that they can grow and they can hire more Australians – particularly given the tough time that they've had coming out of the global pandemic, dealing with issues like floods.
The Payment Times Reporting schedule and Scheme needs to be updated. We've asked Dr Emerson to do a review, and today I can announce that the Government is responding to that review. We're investing $8 million. There are 14 recommendations, with 23 actions around those recommendations, and the government has accepted all of the recommendations. We'll be implementing the recommendations as quickly as we can, and I'll ask Dr Emerson to talk about those recommendations in a moment.
One of the things I would say is that this is critically important to small businesses. We understand that small businesses have been doing it tough, and this is just one way that government can do something to help support small businesses, on top of the other supports that we're doing. I'll hand over to Dr Emerson to talk about the findings of the review, and as I said, we'll be implementing the recommendations.
DR CRAIG EMERSON:
Thanks, Minister. This was a six-month review, so I'll try to keep my findings and summary to six minutes. We found that with the payment times reporting scheme that awareness of it was very, very low among small businesses – less than 1 per cent was our best estimate of small businesses that even knew that it existed. So that gives you an indication of the use of it, that is that it was negligible. We also concluded that the scheme itself, the data that had to be put in led to it being cluttered, clunky and confusing. We even came to the conclusion that it was almost useless. This is the result of the legislation that was passed in 2020, and the scheme that was designed around it. We also found to the best that we could ascertain that there had been no discernible improvement in payment times or terms over that period from 2020 to late 2022.
So that's the kind of implementation, but even the idea of the Act is reflected in an object of the Act. And the key object of the Act is to enable small businesses to make more informed decisions about potential customers. We concluded that was fundamentally flawed. Small businesses can't pick and choose. They are very happy if they can get a large business customer. They just want them to pay on time. But the idea that small businesses could go ‘ah, we’ll go with that one, because they pay on time and this one's a bit dodgy’ – it's just not what happens in the marketplace. And the reason for that is there's a basic power imbalance between small and large businesses. So large businesses, in a sense, are the boss and the small businesses have to take what is given out to them. And in effect, we found particularly during COVID‑19, that large businesses – not all of them – but some large businesses were using late payments as a cash flow advantage over small businesses. So, ‘the money is better in my pocket as a big business than it is with a small business’. So, ‘we'll pay late and give really bad payment times like 60 days’. We found that the regulator – the payment time regulator – was diligent, but she was handed a fundamentally flawed scheme. We looked at lots of options, and it was an interesting exercise, because we approached it with very much an open mind. But we found that a lot of people were saying ‘you've got a mandate a payment time – it's got to be a day’. And when we asked what, it was 30 days – 30 days is what most businesses would say to us. What about big businesses that are already paying on time, say 15 days? They said that the law says 30 days, oh, well, we don't have to pay on time anymore. That's a pretty perverse consequence. Thirty days could be right for some businesses. Other businesses where the head contractor doesn't get paid until they produce a result, maybe that's not, maybe 30 days isn't the right time. And on the other hand, maybe 15 days is a good time. So we didn't think that mandating was a great idea. But also, who makes a complaint? We asked lots of small businesses, would you complain against a large business that hadn't paid on time at all? They say no, because we could lose the whole contract. So we concluded that mandating while superficially attractive, and we were really interested in that, would actually do more harm than good. We then looked at the European system, because they have mandated, they must know what they're talking about. The way that they deal with this problem of small businesses being dumped is that they mandate a payment time, 30 days, among all businesses. Now, it's just not the Australian way, in our view, for the federal government to be involved in every transaction between every business large and small. That is regulatory overkill. So, we said no to that.
What did we conclude? Naming and shaming. Businesses don't like to be named as a late payer. And so we think that that is something that could be done and the government, to its great credit, has picked that up. So you say ‘you're not paying on time, we're going to through a small business advocate, say that – we're going to expose you as a late payer’. But also, if you do pay on time or early, we're going to name and praise. Name and praise. Getting there, won't be – won't be much longer. So, a small business advocate could be, for example, the Small Business Ombudsman. But the government will determine that.
There are 13 reforms, and a total of 14 recommendations. They include utilising unfair contract terms of the Australian Consumer Law. So if the terms of a contract are unfair – that actually is already covered, but this would make it very, very explicit. And you could introduce examples of that, and consider future changes to unfair trading practices. Again, something that exists, but we think could be strengthened and thank you to the government for accepting our 14 recommendations. Finally – now, this is a bit unusual, but I'm going to do it anyway. I want to pay tribute to the Treasury officials who worked on this. Diane Brown oversaw it, and Mary Jeffries, as the person who got this job of implementing of fundamentally flawed schemes worked diligently on it. And directly in our team, Kylie Bourke, Heather McGowan, Nick De Wan, Rosie Collard. Notice anything about that? Almost all of them are women, and that's really great, I think that's a really positive development in Treasury. And I know that's a bit in house, but they'll be amazed that I mentioned that.
COLLINS:
It’s great.
EMERSON:
And finally I want to thank Julie Collins, the Minister for Small Business, for the faith that she put in me in doing this report. And thank you very much for taking it through Cabinet and getting to a position of accepting all the recommendations. Thank you.
COLLINS:
Thank you, Craig. Dr Emerson has been terrific throughout this review. As he has said, we are taking up the recommendations, they are essentially across four themes. They are naming, shaming, and praising big businesses that do the right thing. There are changes to the Reporting Act that we need to make, which will happen sometime next year. Obviously, we need to reduce the burden on big businesses in terms of the reporting schedule to make it easier for big business to report. So we want to reduce their red tape in terms of the reporting. And the other theme across it is to look at other government systems and procedures to make sure that we're doing everything that we can do to make sure that small businesses are paid on time – whether that be procurement, whether it be things around eInvoicing. Making sure that all of our government systems are supporting small businesses to be paid on time.
JOURNALIST:
I'm not sure who's the best person to answer this. In terms of the implications for big businesses, can you talk, or can you sum it up? What, what that actually looks like?
EMERSON:
These changes will make it easier for large businesses to comply with the requirements. So that's good, but it'll be harder for them to get away with bad behaviours. These changes will make it easier for large businesses to comply, but harder for them to get away with bad behaviour.
JOURNALIST:
So almost a preventative approach, you could argue?
EMERSON:
That’s right. If they see this, they say, well, we can do this. But if we don't, we're in trouble. Not only in trouble with the government, but with the community. And you know, the community believes in small businesses. They understand that small businesses like the one that is run here, they don't have a lot of cash all the time, they need to be paid on time. And I think the public understands that. And a large business that wilfully or negligently doesn't pay on time is going to get named and shamed. That becomes a big penalty in the world of ESG.
JOURNALIST:
Do you think, sorry, do you think that naming and shaming goes far enough? Do you think that fines might have been a better way to go or a more motivation, bigger motivation?
EMERSON:
There can be fines, real penalties under the unfair contract terms and unfair trading terms. So naming and shaming is sort of the big visible thing, but the fines will be applied if people don't behave. But the problem with the existing system is that a small business has to come forward, name the company, go to a tribunal. And not only the business that it has named, but other businesses go ‘whoa, you know, don't do business – these are grumpy people’. And that could be very counterproductive. Tell you a very quick story. We said to one small business organisation. The small businesses are interested in naming, you know to go to court and ‘Oh, no, no.’ Well, there was one bloke who was 65 years of age, and he was just about to retire. And then he named, because he said at last I can name them. But it's ineffective because they just won't come forward. Then they've got to produce the evidence and you know, they're in court against high paid lawyers. It just doesn't work. But to your fundamental point, yes, through these changes that the government has accepted, there will be real penalties from bad behaviour.
JOURNALIST:
I’ve got a couple for Julie, how many small businesses around across Australia will be affected by this?
COLLINS:
Well, we hope that all small businesses get paid on time. This is about improving payment times for as many small businesses as we can, particularly those that have contracts with big business. We know that in Australia, depending on what definition, there are millions of small businesses, and they employ over 5 million Australians. So this will have a big impact on our economy. We need to get this right. As Dr Emerson has indicated, the existing regime is not working. We've got big businesses doing a lot of paperwork for no outcome for small business. This will make it better for small business and better for big business too.
JOURNALIST:
Is this change, especially important given cost of living pressures and stuff like that going on, right across the country?
COLLINS:
Yeah, well, we know that small businesses have been doing it tough. We know that they are as impacted by inflation and the issues in the economy as any other individual is. And many small businesses are making some really tough decisions. This is about another way that the government can support small businesses. We’re already supporting small businesses with things like direct Energy Bill Relief, with things like the Instant Asset Tax Write Off, things like the energy efficiency additional tax deduction. We are looking at ways that we can support small businesses and their cash flow. But in a way that doesn't add to inflation, because we need to get the inflation genie back in the bottle. What we saw last week with the CPI is that that is starting to work. But we need to keep that pressure on inflation.
JOURNALIST:
I've got a question. Sorry. If you’re accepting to all the recommendations, with number five, which is the presentation of the reported data, when can small businesses expect that dashboards are to go live?
COLLINS:
Yeah. So we will, we're investing around $8 million in line with recommendations to update the government system, so that we can improve that. We want to move as quickly as we can. Obviously, this won't happen overnight. It will take several months to implement, we will need to change legislation. So, we will be doing it as quickly as we possibly can.
JOURNALIST:
With recommendations six, what kind of penalties for non-compliance will the government support for that?
COLLINS:
Well, we'll look at that through our systems. As I've said, you know, we've accepted the recommendations, all of the recommendations. We want to make sure that we get the regime right, which is why we've taken the time with Dr Emerson to do this review properly. He was not given any instructions in which way this review should go, as you've clearly heard from him. We are very, very willing to sit down and to make sure that we get the regimes right and any amendments we need to make to legislation right. And I don't know if Dean wanted to have a chat about the importance of small businesses being paid on time. And I should just put on the record, I want to thank Dean for having us here at Tunnel Hill Mushrooms. This is the second time I've been to visit what is a great local small business, providing supplies to small and big businesses.
DEAN SMITH, TUNNEL HILL MUSHROOMS:
Hi, my name is Dean Smith. And I'm the owner of Tunnel Hill Mushrooms here.
JOURNALIST:
Fantastic. Maybe tell us a little bit about the operation you've got going.
SMITH:
We purchased this property about 23 years ago, used to be an old railway line went through here. And now repurpose it as a mushroom farm.
JOURNALIST:
Why was a tunnel the best location for something like this?
SMITH:
Well, initially, I didn't have any plans to grow mushrooms. It was just that someone came to me who was in the mushroom industry, and suggested maybe it's a great place to grow. It's mainly the humidity and the constant sort of temperature that makes it a really great place to grow mushrooms.
JOURNALIST:
Sure. And I guess as your business has evolved, have you had much interaction with those? I guess bigger businesses?
SMITH:
I do. Yeah, I supply a lot of large restaurants in town. That's sort of my main customers. So yeah, I do have a lot of experience dealing with larger companies.
JOURNALIST:
And what's that consultation like? Is it normally pretty straightforward or do you run into some issues?
SMITH:
Generally it's great, and I love dealing with the chefs directly. But when it comes time to pay, I can be chasing the invoices up, which isn't great for small businesses like myself. I'm the only person that works here, and I don't really have the time to sort of chase for payment. Plus it also stops my business from growing, because I'm relying on that money to come in from week to week, so I can move the business and purchase equipment. And if it's not paid on time, well, then it puts me under pressure. Even more pressure than I'm currently under.
JOURNALIST:
And I imagine you would be in contact with some other people in the industry as well. Is it a similar problem that other people are facing?
SMITH:
It is. Yeah, I do have a lot to do with the mushroom growers in the state and it’s mainly my business is mushrooms, obviously. But I have been told a few times that they're thinking of stepping away from dealing directly with those sort of restaurants and just going straight to the public because they pay as they pick up on the spot. And they're not chasing for payment, which they are relying on as well.
JOURNALIST:
So news like this, music to your ears?
SMITH:
Yeah, it's great. Yeah, absolutely.
JOURNALIST:
What will these reforms mean where bigger businesses might be named and shamed or will be if they're not paying on time, do you think that'll be inspiration for them to get the cash to you quicker?
SMITH:
Let's hope so. We hope, I mean, for small business, I'm not gonna go through the process of trying to take people to court to get payment and things. I just don't have the time or desire to do it, or the money to do it. So I'm not going to go out of my way to chase the payment. But I think it's only fair that we sort of get paid on time, we do provide a service and I think that's fair enough.
JOURNALIST:
In terms of late payments. I know it's a tricky question. Could you give us like a bit of a rough estimate of how much that might add up to every year? Maybe thousands?
SMITH:
It will be thousands yeah, I'd say so. Yeah. I can't give you precise numbers. I don't do the books. I'm married to an accountant. I don’t have to think about finances. I just think about growing mushrooms. So yeah, it would certainly be in the thousands, I would have thought, you know and I'm sometimes it takes two or three months to get payments for invoices.
JOURNALIST:
You mentioned that not knowing when payments come in it makes it harder for you to grow your business. I suppose now with these changes, you know when you can going to be consistently getting paid. What does that mean for your future business?
SMITH:
Yeah, yeah, well, if I've got to buy equipment or things to progress the business well then I can rely on that money to be in the bank so I can purchase you know, straight ahead and not sort of put delays in time on my business.