The Australian Small Business and Family Enterprise Ombudsman has criticised the payment terms of big businesses, saying that they are “damaging” to small business suppliers.

In a report released yesterday, the ombudsman’s Kate Carnell said that large companies were using the COVID-19 crisis as an excuse for poor payment times, and called for 30-day payment terms to be legislated.

The Supply Chain Financing Review undertook consultations with bigger businesses focusing on supply chain finance ‘products’ which are being offered to facilitate early payment to suppliers.

Carnell explained that in certain cases, and when used in conjunction with appropriate payment terms of 30 days or less, supply chain finance can be helpful to small businesses in managing cash flow.

However she said she was “extremely disappointed” to have been receiving reports of large businesses extending payment times or suspending payments to small businesses even and especially during the COVID-19 crisis.

“These businesses, many of which have turnover in the hundreds of millions of dollars per year, are pushing the pain felt by the current economic climate on to small suppliers who can least afford it,” she said.

“There is no doubt that this behaviour by large players will not pass the pub test. Those that do this should be on notice that behaviours that damage their small business suppliers will, in the end, damage them too.”

Big businesses

The Ombudsman highlighted a number of businesses in the report, including big brewer Carlton and United Breweries as well as department chains Myer and David Jones and the Sussan Group, owner of the Sportsgirl clothing brand.

“When brewers such as Carlton United Breweries claim to support small businesses through this crisis by offering a ‘buy one get one free’ beer promotion, it is easy to point to their track record of seriously impacting small business suppliers with their poor payment practices,” Carnell said of the brewer.

A CUB spokesperson said that the brewer had recently introduced arrangements in line with the terms considered acceptable to the ombudsman, and had always been flexible when it came to negotiating better payment terms for small suppliers, often arranging them on a case-by-case basis.

“In late March, CUB adopted a new payment terms policy for small business supplier invoices to be settled no later than 30-days from the end of the month in which an invoice is received,” the spokesperson said.

Australia’s other major brewer, Lion, was mentioned as a case study in the report, having committed to 30-day payment terms in 2017.

The Ombudsman detailed the brewer’s dealings with two separate companies and its use of the Earlytrade Marketplace to facilitate payments earlier than the 30-day mark if required.

It explained that Earlytrade collects bids from Lion suppliers and compares them to the minimum discount rate required by Lion based on their marginal cost of funds.

If a company’s bid (called a discount rate) is greater than the required rate, the company can be paid on the following day. The competitiveness of discount rates is driven by the supply of cash from Lion and the demand from suppliers for early payment, so suppliers can access cheaper rates at certain times, it explained.

Lion CFO Stephanie Nixon posted a message to LinkedIn saying it was “great to see Lion recognised…for its ethical treatment of suppliers, including paying them promptly.”

“Lion was one of the first signatories to the Australian Supplier Payments Code that commits us to a maximum of 30-day payment terms to our small suppliers – something we have extended to all eligible suppliers, not just small suppliers,” she said.

Effect on small business

The Ombudsman said that small businesses were being hit the hardest by the COVID-19 crisis, and called for legislation to codify acceptable payment terms and the regulation of supply chain finance as part of the report.

“Large businesses extending or in some cases, suspending payments to small businesses are on notice that this behaviour is unacceptable,” Carnell said in a media release.

“Many small businesses have been forced to close their doors and a lot may not survive the coming months, even with significant support from the government. That’s why it is more important than ever to ensure small businesses are paid on time.

“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.”

In the wider industry, Endeavour Drinks Group was commended early on in the COVID-19 crisis for introducing early repayment terms, reducing them to a maximum of 14 days in efforts to aid their small suppliers.