The scheme aims to improve payment outcomes for small businesses. It creates transparency around the payment practices from large businesses to small business suppliers.
Small businesses will have access to information on reporting entities’ payment performance. This enables them to make a more informed decision about their potential customers. Greater transparency on payment practices and performance also encourages cultural change to improve payment times.
Long (after 30 days) and late payments are a significant problem for Australia’s 3.5 million small businesses. This has negative impacts not only on these businesses but also more broadly across the economy. Small businesses that are paid slowly pay their suppliers more slowly in turn.
A 2019 study by AlphaBeta highlights the importance of addressing this issue. Analysis of over 10 million invoices from more than 76,000 small businesses estimated the quantum of long payments by large business is $77 billion per year.
More than a third of small business invoices are paid after 30 days. These invoices take an average of 63 days to be paid. This was estimated to equate to $7 billion in working capital transferred from small to large business every year.
Long and late payment times affect the cash flow of small businesses that are owed the outstanding debt. The need to cover the shortfall in their working capital constrains the ability of small businesses to hire, invest and grow. It also leads to higher bankruptcy and exit rates, and impacts the mental health of small business owners.
According to AlphaBeta’s research, normalising a 30-day payment time from large business to small business is beneficial. It would have an estimated net benefit to the Australian economy of $313 million per year.