Government agencies to automatically pay interest on late SME invoices

Government agencies that fail to pay invoices from SMEs after 60 days will automatically pay interest at a rate of more than 11% after a change to SME invoice processing was announced yesterday.

Under changes announced by Small Business Minister Brendan O’Connor and Finance Minister Penny Wong, an invoice for interest will be automatically generated after 60 days for all contracts where the interest accrued is greater than $10 and the contract does not exceed $1 million.

Wong says this reverses the current position where the SME itself must issue new, separate invoices to the government agency requesting the payment of interest.

“However, this can require additional paperwork, which means many small businesses don’t bother,” Wong said in a statement.

“This change will see agencies more likely to pay invoices on time to avoid having to pay the additional interest.”

The change will be welcomed by SME suppliers to government. Statistics released earlier this year by Treasury show that about 60% of the 80,000 contracts entered into by the Commonwealth in 2010-11 went to small businesses. SME’s received about $11 billion of worth from the government in that financial year.

The data suggests agencies already have a good strike rate when it comes to making payments on time, with Treasury saying 97.7% of invoices are paid within 30 days.

Interest on the late payments will be calculated using the Australian Taxation Office’s annual general interest charge rate reported on a quarterly basis (this currently sits as 11.37%) and SMEs will still be able to invoice agencies after 30 days if payment is not received.

The move hasn’t won universal acclaim though. Opposition small business spokesman Bruce Billson believes the Government has pinched one of his ideas.

The Coalition went to the 2010 election promising to improve payment processing for SMEs with government contracts and Billson believes his thunder has been stolen.

“The Gillard government punishes small business with its own policies by introducing the world’s largest carbon tax but then tries to make out it’s the friend of small business by photocopying the Coalition’s policies.”

For more on the Coalition’s claim that its SME policies have been copied by the Federal Government – and why’s that’s no bad thing for SMEs – head to Entrepreneur Watch.