Negative cash flow is the primary cause of 90% of small businesses failing, so the Australian government has decided to take action by implementing a new payment benchmark for any small businesses providing goods and services to a federal government agency. Invoices on any contract worth less than $1 million must be settled within 20 calendar days. Ninety-seven percent of government agencies already pay their invoices within 20 days, but this goes one step further. All federal government agencies will have to publish their payment times to increase transparency and accountability.
ASBFEO final report
In 2017, the final report from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) was released. It made 10 recommendations, six of which sought to increase the government’s role as a payment leader. Recommendation seven seeks to heighten awareness of the BCA Australian Supplier Payment Code, which was launched in May 2017. The government will commit to monitoring payment trends and take guidance (if necessary) on whether sanctions for late payment should be implemented.
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ADIA welcomes faster payments
The government’s decision to deliver faster payments comes as a direct result of the ASBFEO’s report. The Australian Dental Industry Association (ADIA) has welcomed the decision by the Turnbull government to approve a faster payment commitment.
“Many ADIA member businesses provide products to the Australian government and this decision will improve the dental industry’s cash flow, allowing these businesses to grow, create jobs, and operate sustainably,” said Troy Williams, ADIA Chief Executive Officer.
The ADIA has long been advocating for late payments to be addressed and it has raised the issue with the ASBFEO and government ministers on previous occasions.
The Australian late payment culture
The late payment culture in Australia has been a problem for years. Cash flow problems created by customers paying their invoices late has been putting small businesses at risk. In 2013, the Australian Prompt Payment Protocol Discussion Paper discovered that $19 billion went unpaid after the standard 30-payment term ended. This led to some serious discussion in the business community about how this problem could be addressed.
The Federal Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education's paper discovered that the average invoice settlement time was 54.1 days. Large businesses, especially those in the mining, gas, electricity, and sanitary sectors, are the worst offenders, but the late payment culture affects all businesses, including those in the dental industry.
Building sustainable business relationships
Dental businesses supplying federal government departments will now have a far greater degree of protection, as long as they submit a correctly rendered invoice. For small businesses, and those just starting out, the news is welcome.
Any business could learn how to trade Forex if they want to aim to maximize currency conversions when dealing with foreign businesses, but if a customer doesn’t pay on time, it can cause a lot of damage. All businesses want and need greater payment protection. They also want reliability and certainty.
Businesses relationships thrive on trust, so when a customer is late paying an invoice, that relationship is irrevocably damaged. Let’s hope that the “Delivering Faster Payments” promise has a positive effect on the dental industry and beyond.