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Australian businesses could be forced to reveal how long they take to pay suppliers and whether they offer any form of supply chain finance (SCF) under proposed new legislation to tackle the “systematic problem” of late payment.

Consultations closed this week on a long-awaited exposure draft of the Payment Times Reporting Framework. If passed, the bill would require businesses with an annual turnover of A$100mn to submit information to a publicly accessible online portal, including the shortest and longest payment terms they offer and the proportion of invoices that are paid within contract terms.

Businesses would also have to disclose whether they offer “any form of supply chain finance, reverse factoring or discounting and, if so, details of that arrangement and the total proportion (number and value) of invoices where these arrangements were utilised”.

The information would be public to allow smaller firms “to make better informed decisions about who they do business with” and incentivise larger corporates to speed up payment times. The approximately 2,500 firms covered by the turnover threshold would also be expected to file six-monthly reports to the regulator, signed off at boardroom level and with fines for companies and individuals that do not comply.

The proposals follow a study by accounting software firm Xero, which examined more than 10 million invoices from 83,000 Australian SMEs. It estimates that over the 2017-18 financial year, the value of late payments to those businesses totalled A$115bn.

“If these payments were made on time it would be the equivalent of transferring A$7bn in working capital from large to small and medium businesses,” the government says in a consultation paper accompanying the draft bill.

It adds: “Late payments are a systematic problem for Australia’s 3.4 million small businesses, with negative impacts not only on small business but also more broadly across the economy as small businesses that are paid slowly pay their suppliers more slowly in turn.”

The government hopes to have the reforms in effect from the start of January 2021.

The proposals are separate from work by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to protect suppliers from late payment, though the independent authority has already thrown its weight behind the draft law.

Citing a separate survey of 1,200 SMEs carried out by East and Partners, the ombudsman says firms “are waiting an average of 56 days to be paid” and that “at any given time, SMEs have a third of their revenue tied up in outstanding invoices”.

Though the ASBFEO has suggested legislation should include a requirement that suppliers are paid within 30 days or fewer, that was not included in the government’s initial draft bill.

 

Supply chain finance

The Australian government has not given details on why supply chain finance programmes would also have to be disclosed as part of the reforms, but the move takes place amid widespread calls for greater transparency around the practice.

Federal authorities in the US came out in support of new accounting standards in January, following recommendations from ratings agencies that firms offering SCF programmes should disclose that information as part of company filings, and fintechs have also been supportive of efforts to improve transparency.

Bob Glotfelty, vice-president of growth at financing platform Taulia, tells GTR: “Disclosing whether an early payment programme is being offered will likely be beneficial for all involved. While it does add administrative work to provide periodic programme reporting, having clear disclosure requirements will provide clarity.

“This will reduce uncertainty and it will help suppliers more easily identify which customers offer these programmes.”

Supply chain financier Greensill says it does not comment on proposed legislation but that it is always supportive of greater transparency in the provision of working capital finance.

A spokesperson tells GTR that its product offering “is specifically aimed at making finance fairer for businesses and people worldwide, and particularly for small and medium-sized suppliers. An important part of that ethos is that we will not work with large companies who extend payment terms to SME suppliers beyond 30 days”.

There have been other controversies around supply chain finance in the Australian market. A position paper published by the ASBFEO in February accused some larger firms of misusing such programmes, extending their payment terms to suppliers before then offering payment on the previous timescale – at a discount.

It also alleged that some providers of SCF attempt to extract greater returns by using artificial intelligence to calculate when suppliers are most likely to sign up. The ombudsman recommends the issue is taken up by regulators on competition grounds and is expected to produce a final report on the subject later this month.

However, negativity around SCF has prompted a backlash from the trade finance industry. A group of influential industry associations last month launched a defence of supply chain finance, arguing that while examples of bad practice are “worrying” they are “not representative of how payables finance programmes are used by the majority of buyers and sellers in mutually supportive supply chains”.

A paper published by Greensill in March included testimonies from two Australian suppliers who use its SCF products. Imperium Engineering says access to 10-day payment terms “saves our cashflow and our sanity”, while Sydney-based Construction Claims Consultants says it can now offer better payment terms than its competitors due to “more consistent and predictable” revenue streams.