Watch Matt's speech here
Labor welcomes the debate on the Payment Times Reporting Bill 2020 and the Payment Times Reporting (Consequential Amendments) Bill 2020. We do so because we have long advocated for better payment practices to small business suppliers. We welcome these bills as a step in the right direction. From the outset, I emphasise that Labor supports the intent of this legislation as a first step in improving the payment practices of large businesses to their small business suppliers. As my colleagues and I, and indeed our fantastic candidate for Eden-Monaro, Kristy McBain, are all too aware, cash flow and prompt payment times are critical for small businesses.
Imagine you've kicked off your own small business, manufacturing a product, and you score a contract with a mining giant to supply a critical part. You think you've hit the big time. You really think you've struck it lucky. But then that mining giant tells you that it will pay you what it owes in 60 days, and then maybe 90 days, but maybe that can be sped up if you can cut them some slack and trim down the invoice to a more palatable amount. You're out of pocket for the product, the labour and the materials, but they're a much bigger organisation than you. What can you do? You can't get your big first major client offside, but you also can't afford not to be paid. You cop the wait.
Imagine, perhaps, that you're a sole trader, a photographer taking shots for some of the nation's biggest retail chains. You spend hours—days, in fact—preparing, shooting, editing and re-editing the images. You've perhaps said no to smaller jobs in order to get this big one done. Then these retailers tell you that they'll pay you in 90 days or so, and then they say: 'Actually, can we make that 120? Surely you understand COVID is rough and we don't have the cash flow to pay your invoice at the moment.' You feel like you're propping up their ASX listed business at the expense of your own microbusiness, helping keep their heads above water while drowning yourself. But once again you don't have a choice. You don't want to say anything for fear of losing future work from them. You bite your tongue. After all, what they are doing isn't illegal. You're the little guy. You'll just have to wait it out.
The practices of reverse factoring, or pushing out payment times for suppliers, aren't illegal, but perhaps they should be. Small businesses are at the mercy of large ones. Over the last 50 years, there's been a lot of focus on protecting consumers from business but not enough on protecting small, vulnerable businesses from the power imbalance of dealing with large businesses. Small businesses don't have access to the capital and financial options larger companies do. Because of that, their cash flow is easily disrupted, and the experience of COVID-19 has certainly been an additional example of that.
The Payment Times Reporting Bill before us today introduces a new payment-times reporting scheme that requires approximately 3,000 large businesses and government enterprises with an annual turnover of $1 million or more to publicly report biannually on their payment terms and practices for small business suppliers, the objective being the improvement of payment outcomes for small businesses through improved transparency. The government argues that this transparency will help small businesses to make better informed decisions about their potential customers. But, if you're a new manufacturer approaching a mining company who wants your product, are you really going to say no? What choice does a small business really have in who its customers are? If you're a photographer who is looking for some steady work, are you going to turn down a retail chain? Of course not. To put the onus on the small business to decide who their clients will be to achieve a fairness outcome for them is backwards. As I said, small businesses are at the mercy of larger ones, a cog in a supply chain, and are awaiting payment like everyone else.
The bill before us is, unfortunately, purely about reporting. As was noted by the New Zealand Ministry of Business, Innovation and Employment in its discussion paper on improving business-to-business payment practices:
… it is very hard to establish whether disclosure regimes have any effect.
The government's legislation does not mandate maximum payment times to small business, nor does it provide for penalties or remedies on invoices that are paid late or with payment times greater than 30 days. The Australian Small Business and Family Enterprise Ombudsman welcomed the reporting framework as a step in the right direction. However, they note that the belief that small businesses can simply shop around for large business customers is deluded. This legislation, as identified by the regulation impact statement, is nothing more than a ticking-the-box exercise on a Liberal election commitment and an opportunity for that headline-grabbing 'backing small business' slogan. This bill differs little from the Business Council of Australia's current voluntary and unenforceable supplier payment code, a non-binding pledge to pay small businesses within 30 days of invoice. In fact, similar business reporting frameworks were drawn up back in the time of the Gillard government. So once again we see that this Liberal government is rocketing along with reform, just as in so many other areas!
The Small Business and Family Enterprise Ombudsman, Kate Carnell, for example, welcomes the transparency this legislation will bring; however, she also notes that the payment times reporting framework is:
… one piece of the puzzle but it won't solve the problem of late payment times on its own.
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 EU already requires this, and countries like New Zealand are moving harder and faster to a 20-day payment turnaround. We should be looking to follow in their footsteps. When it comes to supply chain financing, there has been significant conversation about that this year, particularly in the case of reverse factoring, in which contracted payment times are extended, sometimes to 120 days or more from the date of invoicing. In such instances, a large business will push out contracted payment times to smaller suppliers and offer a third-party financier who will pay the invoice earlier on their behalf but at a discount, meaning the small business effectively pays a fee to be paid on time.
Rightfully, supply chain financing has attracted international regulatory scrutiny for obscuring the true debt position of firms using it. The Australian Competition and Consumer Commission have confirmed they are reviewing arrangements of some large firms' use of reverse factoring for breaching the Australian Consumer Law relating to unfair contract terms, misleading and deceptive conduct and/or unconscionable conduct. The Australian Securities and Investments Commission have also confirmed that they are investigating such arrangements in relation to auditing and financial reporting requirements.
While this bill is a step in the right direction, it's not there yet. We have concerns about its efficacy and many shortcomings, and that's why it should be referred to the Senate Economics Legislation Committee for inquiry and review. It is Labor's belief that this review should focus on things like the objects clause, making it explicit that it's around motivating large businesses to pay their suppliers in less than 30 days. It should also look at the efficacy of the reporting regime and require reporting to parliament. It should look at the mechanisms to legislatively require large businesses to make payments to small businesses within a prescribed period of time. The EU has done this. Other countries have done this as well, and New Zealand is heading in that direction too. An inquiry can also look into the set-up and proper resourcing of the proposed new regulator under the bill and whether the elements of the proposed extensive use of delegated legislation via minister's rules is appropriate or it should instead be incorporated into the legislation itself.
As I said before, we welcome this legislation. It does represent a step in the right direction. But, as it is now, it falls short, and we look forward to the outcomes of a future inquiry about how yet again we can improve the legislation coming from this government.