Small businesses need to be paid faster

15 June 2020

I rise to speak on the Payment Times Reporting Bill 2020 and the cognate bill and to support the amendment moved by the member for Gorton.

The Payment Times Reporting (Consequential Amendments) Bill 2020 introduces a new payment times reporting scheme, which requires approximately 3,000 large businesses and government enterprises with annual turnover of $100 million and above to publicly report biannually on their payment terms and practices for their small business suppliers. Some business entities, such as large cooperatives, are exempt from reporting, as are charities and not-for-profits.

Entities that fail to maintain payment records or provide false or misleading information in a report may contravene a civil penalty provision. Reporting entities will be given an 18-month penalty-free transition from the implementation date to familiarise themselves with the scheme and transition effectively.

As previous speakers have said, Labor supports the intent of the bill as a first step in improving payment practices of large businesses to their smaller suppliers of goods and services. The bill does not mandate maximum payment times to small businesses and fails to provide penalties on invoices that are paid late or with payment times exceeding 30 days.

As every small business in my electorate of Dobell will tell you, cash flow and on-time payment are critical for small businesses. The objective of this scheme is to improve payment outcomes for small businesses by creating transparency around the payment practices of larger businesses. With greater transparency, small businesses will be able to make better choices about their customers.

Concern has been expressed about the detail that is being left to delegated legislationthat is, the minister's rules. Stakeholders want legislative certainty on the design of the scheme, particularly some of the more controversial provisions.

The Small Business and Family Enterprise Ombudsperson believes the framework is unlikely to significantly change the behaviour of most firms. Kate Carnell said that the Payment Times Reporting Framework is 'one piece of the puzzle, but it won't solve the problem of late payment times on its own'. Further, she said:

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.

It's not just Labor raising concerns about supply chain finance solutions. Kate Carnell has launched a review of supply chain finance, saying:

it is totally unacceptable for big businesses to use supply chain financing arrangements as a replacement for reasonable payment terms being offered, 30 days or less from invoice.

Third-party financing must not replace reasonable payment terms being offered 30 days or less from invoice and paying to those terms. It is not acceptable for large businesses to use small suppliers to optimise their cash flow.

The Australian Accounting Standards Board is looking into the tiger trap of reverse factoring and will be discussing it further with international accounting standards boards and other relevant regulators.

Supply chain financing has attracted international regulatory scrutiny for hiding the true debt positions of firms using it and creating systemic economic risks. Labor is part of an international chorus of voices concerned about supply chain financing arrangements, including rating agencies and international audit firms.

The definition of 'supply chain financing' and the reporting requirements are contained in delegated legislation, in the minister's rules. The draft rules only require large entities to report on whether they use supply chain financing, the details of those arrangements and the proportion of invoices paid under such arrangements. The legislation references supply chain finance in passing. Small businesses have no guarantee that a minister may not simply remove the requirement to report on the use of such arrangements.

Labor will refer this bill to the Senate economics legislation committee for a brief inquiry. There are several concerns that need to be examined. A brief inquiry should not stop this from being properly debated and ready to go from the intended starting date of 1 January 2010. As I've said, Labor will support this bill as a first step in improving payment practices. The review should consider that the bill does not have a clear target on where average payment times should fall to and whether this should be a feature of the regime. The Payment Times Reporting Scheme is a transparency initiative to support self-regulation. Self-regulatory regimes are usually 'poor' to 'questionable' unless backed by a genuine threat of heavy-handed regulation.

Labor has concerns that a self-regulatory payment regime will not result in faster average payment times. The Senate committee should explore incentives for larger businesses to improve their payment practices. The procurement linked payment times policy does not have any incentives for large firms who do not seek government contracts. Comparable jurisdictions have implemented or are considering legislated payment times. New Zealand is consulting on legislated 20-day payment times with interest charges for payments over 20 days.

Another concern is that the bill does not require the regulator to publish average or median payment times or representative invoice sizes. The committee should explore whether the regulator must be required to release this data publicly. The committee should explore stakeholder suggestions that the reporting requirements and the definition of supply chain financing in the draft regulations are set in the legislation.

The bill intends to legislate the following brackets for reporting entities to provide information on payments made less than 21 days after the invoice is issued, between 21 and 30 days, between 31 and 60 days and more than 60 days. However, large firms, particularly those using supply chain financing, use contracted payment times of 120 days or more. The top bracket of 60 or more days allows these very long payment times to be hidden. For these reasons it is incumbent on the Senate to review this bill for its efficacy and any shortcomings.

I will turn now to my local economy and how it's been hit by COVID-19. The coast's economy is built on the shoulders of industries typical of coastal regions across Australia, like tourism, hospitality, retail, food manufacturing and construction. We're a proud and hardworking community. There are 9,803 small and family businesses in my community employing 35,000 local people. There are 2,500 small and family construction businesses; 11,000 tradies; 1,061 small architectural, engineering, accounting and photography firms; and 896 small rental, hiring and real estate agent services. These businesses rely on on-time payments. When a payment is late these businesses are put at risk, a person's livelihood is put at risk.

It's been a tough year across Australia and a particularly tough year on the coast. We faced bushfires and floods before COVID-19 and COVID-19 has had a devastating impact on our local economy. When non-essential services were shut down, the coast felt it hard. On 28 May the Grattan Institute released its 'Job losses caused by COVID-19, electorate by electorate' report. Dobell saw a sharp loss of 5.7 per cent. This was devastating for a region already facing above average unemploymentin particular, youth unemploymentand underemployment before this crisis hit.

Many people have fallen through the cracks of COVID-19 support and are not receiving the help that they need. As I said, I come from a proud and hardworking community. When people are doing it tough, we pull together. I'm proud of the way we've worked together, but there comes a time when proud people need help.

Labor has been calling on the government for weeks to develop a comprehensive housing stimulus plan. As I mentioned, there are 11,000 tradies on the north end of the Central Coast and 2,500 small and family businesses working in the housing and construction sector. We need proper stimulus to kickstart the economy and get these businesses and families back on their feet. Labor has recommended five things that the government could do: construct more social housing; repair and maintain existing social housing; construct more affordable rental accommodation for frontline workers, and provide expansion of the First Home Loan Deposit Scheme for new builds and grants to first home buyers who build their first home. The government's recently announced HomeBuilder package barely ticks one of those boxes. The package was announced with no option to apply, and, as of 10 June, there have been no applications for this grant. The government expects Australians to spend $150,000 on renovations without providing any certainty of whether they'll qualify for the grant. The tradies in Dobell deserve better. The small business owners in Dobell deserve better. The small business owners in our community deserve better.

I raise this matter because, during COVID-19, this is legislation that is meant to help and support small businesses. What's the government doing to properly support small businesses across Australia and communities like mine that have been so hard hit by COVID-19? Sadly, we know the link between financial distress and mental anguish and the consequences that can come from that. It'll be a long and bumpy road to recovery in communities like mine, and the government needs to do so much more. The tradies and small businesses in my community deserve better than a housing package that's expected to be taken up by just 7,000 people. Housing construction is due to fall, and the Morrison government has produced a scheme that's difficult to understand and even harder to access. The government must consider investing in social housing so that the tradies and small construction businesses of Dobell aren't lost to our community.

During the COVID-19 crisis, we've heard some shocking examples of large companies telling smaller suppliers that their payment terms are being blown out to 120 days from the date of invoicing. Tradies like my brother Eddie, a plumber on the Central Coast, deserve better than this. Prompt payments and cash flow are far more important to small businesses than they are to larger businesses. Small businesses rely far more on payments and bank finance. Without payments, small businesses will suffer. Our community will suffer. The local economy on the Central Coast deserves better. The small businesses on the coast have been through a lot this year, as I mentioned: bushfires, floods, and now COVID-19. They should not have to wait 120 days or more to be paid for their work.

Small businesses are the lifeblood of Australia. They are the foothold of our community. They are run by mums and dads, sisters, brothers and friendsthe people who make up our community. The COVID-19 pandemic has impacted small businesses across Australia. They have felt it hard. They deserve a fair go and to be paid on time for their work. As I said, Labor supports this bill as a first step towards helping small businesses, but we are still concerned about supply chain finance and the impact it will have on small businesses. I urge the minister to act on supply chain financing and help small businesses to be paid on time.