About one in two small businesses reported more than 40 per cent of their invoices were paid late last financial year. Maria Fletcher and Maria Porto, co-founders of Tinta Crayons. Credit:Jade Wisely The major culprits were large and multinational businesses, which more than half of respondents say "always" or "frequently" make late payments with a growing trend of typical payment times of 30 days moving out to 45, 60, 90 or 120 days. However, Australian government departments and agencies are also to blame with 21 per cent of respondents saying they "always" or "frequently" make late payments. Of the respondents 70 per cent said late payment impacted on their family and their mental health. "They talked about spending five hours a week on the phone just trying to get people to pay," Carnell says. "If you can't pay your staff because you haven't been paid it's pretty stressful. There were really sad stories of people having break downs and significant family issues like marriages breaking up."

Tinta Crayons Maria Fletcher, the co-founder of handmade wax crayon business Tinta Crayons, says the impact of late payments is real creating a feeling of "helplessness". Kate Carnell says small businesses are being treated like banks by big businesses. Credit:Sean Davey "We put due dates on our invoices and to some extent I see no point on putting a due date on as nobody ever looks at it, they pay when they feel ready," she says. Fletcher says as a small business with a turnover of about $70,000 the amounts owed are not large but they have a significant impact on Tinta Crayons.

"Sometimes even small amounts of several hundred dollars, you have to ring or email four or five times," she says. "The administrative time of chasing it is quite burdensome and you also get lots of quite evasive excuses so it really can ruin the relationship you have with those other businesses." Tinta Crayons now requires stockists to pay up front before delivery and Fletcher says she will wait to see if the Ombudsman's recommendation for payments legislation makes a difference. Small business should never have to act as a bank for big business, helping to finance multinational companies Kate Carnell "How would it be enforced and how would it be policed?" she says. Legislation needed

Carnell is calling for legislation to set a maximum payment time for business-to-business transactions and wants the Australian government to adopt a 15 business working days limit on payment terms from July 2018. The Ombudsman also wants legislation for large business to disclose publicly all of their payment terms and performance against those terms and for the Australian government to procure from businesses that have supply chain payment practices equal to or better than government terms. "Extending payment times for suppliers effectively uses the businesses in the supply chain as a cheap form of finance," says Carnell. "Small business should never have to act as a bank for big business, helping to finance multinational companies." Carnell says the trend for extended payment times is impacting the economy by slowing down the flow of cash and is killing small businesses. "When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business," she says.

Poor cash flow is the primary reason for insolvency in Australia. "We saw individual cases of really long payment times like six months and longer where big business lost invoices and knocked them back for pedantic issues like page four of the invoice has the incorrect code," Carnell says. "They are just approaches to give an excuse not to pay. It has become a bit cultural almost." Going beyond voluntary payment code The Business Council of Australia on Wednesday proposed a voluntary industry code to ensure small businesses are payed within 30 business days of issuing an invoice but the Ombudsman's inquiry found a voluntary code is not enough. Carnell warned overseas experience showed voluntary measures did not compel all businesses to change their practices on extended payment terms or late payments.

"We think a voluntary code will be signed by the good guys and those that aren't will just ignore it," Carnell says. "That's what happened in the UK [which has a voluntary code]." The inquiry found public reporting and monitoring alone will not compel the worst offenders to adopt shorter payment times, nor necessarily improve their payment practices. "Where law does not exist there will be exploitation of the gap." Access to justice The inquiry also calls for easier enforcement and dispute resolution procedures for small business.

"In general businesses do not chase debts under $10,000 as the costs (including legal and administrative costs) are often greater than the debt amount and the time to recover the debt offsets any possible benefit to cash flow," the inquiry found. The inquiry says access to justice needs to offer low cost and fast enforcements for small business. Small business minister Small business minister Michael McCormack says he will review the Ombudsman's inquiry and the government will release a response. "Sixty, 90 and 120 days are not good enough," he says. "Small business should not be used as big business' bank. My message to big business is clear – negotiate fair terms and stick to those terms."

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