Australia’s small businesses watchdog is warning providers of supply chain finance (SCF) that they should refuse to deal with corporates that extend payment terms beyond 30 days, or risk being on the receiving end of tougher regulatory requirements.

Following a months-long consultation and sector review, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has this week recommended reforms ensuring smaller suppliers are paid in 30 days or fewer.

Its final report – which follows an explosive initial position paper in February – takes aim at large buyers that delay paying SME suppliers, recommending that legislation is introduced setting maximum terms of 30 days for payment to businesses with under A$10mn annual turnover.

Ombudsman Kate Carnell says corporates that offer longer payment terms “are on notice that this behaviour is unacceptable”, adding: “We know that if small businesses are paid on time, the whole economy benefits. On the flip side, a lack of cashflow is the leading cause of insolvency.

“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.”

The paper singles out a handful of Australian firms as having demonstrated “damaging” payment policies. One firm mentioned is Carlton United Brewery, although a company spokesperson tells GTR it adopted new payment terms in late March ensuring smaller suppliers are paid “no later than 30 days from the end of the month in which an invoice is received”.

Construction and engineering firm CIMIC is accused of changing its payment terms from 30 to 60 days from the end of the month, but offering suppliers payment through working capital finance provider Greensill within 10-12 working days. The report says one smaller supplier “was left with a choice to use the Greensill SCF offering or go out of business”. CIMC declined to comment.

Representatives from MYER, which the report says has been found to offer payment terms of up to four months after the month of delivery, as well as David Jones, did not respond when contacted by GTR. Representatives from Sussan Group and Just Group could not be reached.


SCF providers under pressure

The report also concludes that providers of supplier payment programmes have a role to play.

Though it acknowledges that SCF is “a legitimate and effective product”, allowing suppliers to be paid earlier while freeing up working capital for the buyer, it says it is “critical that harm inflicted on small businesses as a result of misuse of these products be urgently addressed”.

“SCF should be available to small business to reduce payment times from 30 days to better,” the ombudsman says. “Where SCF providers wish to avoid sector regulation, they should undertake not to provide their products to companies extending payment times to small businesses beyond 30 days.”

Greensill has been vocal in its support for restrictions on extended payment terms by larger corporates, even stating that it will refuse business from Australian buyers that do not pay suppliers within 30 days.

The ombudsman says another provider, C2FO, has also said it is working with its corporate customers to limit payment terms to 30 days, and reduce them to 20 days where possible.

“We are looking forward to seeing the evidence of significant improvements made by Greensill and the other SCF providers in this regard,” the report says.

However, the February paper levelled several other accusations at providers of SCF. It said some have helped pressure suppliers into signing up to programmes that are not in their interest, and that some use artificial intelligence (AI) to “gouge” the greatest possible financial returns.

It suggested Australian competition regulators should investigate such firms’ use of data analytics, and that the government should consider regulating rate setting by SCF providers. It concluded that officials may have “little choice but to regulate” the sector.

Those accusation are still present in the ASBFEO’s final report, although there are some signs of inconsistency.

For example, it says SCF provider Taulia has been “strenuously denying the use of AI following the release of our position paper”. However, in Taulia’s submission to the ombudsman’s consultation, it says: “While this section of the position paper does not accurately describe how Taulia uses AI, we do use AI for our SCF programs.”

Taulia also explained to GTR in March that the company uses AI to optimise adoption among suppliers, for example by predicting how quickly an invoice will be approved. The company is understood to be surprised by the report’s conclusions.

A spokesperson for Greensill tells GTR that the company “uses data as a tool to ensure all suppliers, including SMEs, get the fairest access to working capital possible”, adding: “We welcome the report and look forward to continuing to work closely with the ASBFEO.”

The ombudsman also confirms its support for new transparency rules proposed in March, which would require large businesses to disclose publicly whether they offer SCF.

It says the reforms should also require companies to report any use of AI “to maximise discounts accepted by small business suppliers” and that any “kickbacks” paid to corporates by providers of SCF should be fully disclosed.