Michaelia Cash slams “unacceptable” big business payment times, dodging questions about ‘reverse factoring’

Minister for Employment, Skills, Small and Family Business Michaelia Cash has indicated the government will address controversial ‘reverse factoring’ arrangements in a long-awaited response to the small business ombudsman’s March payment times review.

Appearing at supplementary Senate estimates hearings yesterday, Cash was questioned about why the government had not responded to the Australian Small Business and Family Enterprise Ombudsman (ASBFEO)’s probe into late payment times for small businesses.

The review, published in April after initially being requested by Cash last November, made 10 recommendations for overhauling small business payment times, amid ongoing concern extended terms are a prevalent cashflow issue.

Small business ombudsman Kate Carnell described big business behaviour as “selfish and short-sighted” in April after releasing the damning report, which found it still takes 36.7 days on average for small businesses to get paid by big firms.

Cash said big businesses taking longer than 30 days to pay small business suppliers was “unacceptable” when the government has adopted a 20-day timeframe.

Now, about six months after the initial publication of the April review, Cash said the government is still working on an inter-departmental response, which will include input from Treasury and is expected to directly address the ombudsman’s recommendations.

“The report is currently with the other departments for response,” Cash said.

While the government has responded to a 2017 inquiry into payment times undertaken by the ombudsman, the more recent review specifically addressed how supply chain financing could be affecting payment times.

Minister coy on ‘reverse factoring’ inquiry

Carnell’s fifth recommendation, which states ASBFEO will review the impact of supply chain financing strategies offered by big businesses, spurred questions from Labor senators.

Specifically, Cash was asked whether the government will refer an inquiry into the use of controversial ‘reverse factoring’ arrangements to ASBFEO, which would allow Carnell to use the full extent of her statutory powers.

Reverse factoring, a supply chain financing tactic that’s been making headlines lately, typically involves a larger company hiring a third party to manage its supplier invoices, offering faster payment than would otherwise be offered, but charging a fee.

As larger firms experiment with the practice, Australian regulators are examining whether such arrangements result in pressure on small firms to accept longer payment terms or discounts for faster payments.

The AFR reported comments from Greensill Capital earlier this month defending reverse factoring, which prompted Labor to publish another statement about the issue, setting the stage for questioning about the practice at estimates on Wednesday.

The ACCC has looped ASIC into a probe examining reverse factoring in Australia, which was sparked by complaints passed on by Labor’s small business spokesperson Brendan O’Connor.

Carnell is already planning on undertaking an inquiry into supply chain finance arrangements, such as reverse factoring, but a request from the government extends her investigative powers, adding the ability to compel large firms to attend hearings.

“We don’t need government approval to do it [the review],” Carnell said.

“But you know, we are always happy to have an official request in that space, when the [small business] minister asks us to do an inquiry it gives us some extra power.”

Carnell said the prevalence of reverse factoring arrangements appeared to have “broadened” over the last six months, underscoring the presence of “real issues” for SMEs.

“At this point what they’re doing is absolutely legal,” Carnell said.

“We believe that it’s really inappropriate … I don’t think anybody thinks it’s reasonable to extend payment times,” Carnell said.

Cash would not confirm or deny whether the government will refer the matter to ASBFEO, accusing Labor senators of “pre-empting” the government’s long-awaited response to the ombudsman’s review.

“There is major consultation with other departments going on,” Cash claimed, without going into further detail.

Reporting framework moves ahead

Cash said the government was currently in the “implementation phase” of a range of payment time reforms, including shorter terms on government contracts, and ongoing consultation on the forthcoming payment reporting times framework.

The reporting scheme will force big businesses to publicise data about their small business payment times and practices. It was announced by the government in response to ASBFEO’s 2017 review but is yet to be launched.

It appears unlikely the scheme will be up and running before 2020, with the Department of Employment, Skills, Small and Family Business planning to present the results of the consultation to the government later this year.

Cash defended the government’s record on payment times, saying it was getting on with implementing policy as a response to the April review.

“The public response is the policy the government is implementing,” Cash said.

Indicating the reporting framework would assist in addressing concerns about supply chain financing, Cash said small businesses will have better access to information soon.

“[The government is] implementing a reporting framework for this exact reason, so that small businesses have full knowledge of big companies and how long it is taking them to actually pay an invoice,” Cash said.

SmartCompany asked Cash’s office to clarify her views on reverse factoring arrangements and whether the government will refer an inquiry into reverse factoring to ASBFEO, but did not receive a response before deadline.

Opposition Labor senators pushed questioning about reverse factoring, following a presser issued earlier this month claiming the Australian Competition and Consumer Commission (ACCC) had launched an investigation into the extended payment times. 

The ACCC did not issue its own press release on the matter, and later clarified it will follow up a complaint about extended payment terms, passed on by O’Connor.

O’Connor issued another presser on Wednesday afternoon, reiterating Labor’s concern about reverse factoring arrangements and claiming Cash “refuses to answer questions properly”.

“The Minister is too busy talking up a big game on payment times, rather than taking any action on the issue,” O’Connor’s release reads.