Nick Fox: Today I'm lucky enough to be joined by Bruce Billson the Australian Small Business and Family Enterprise Ombudsman to discuss the payment times reporting scheme, thank you for your time Bruce.
Bruce Billson: Nick good to be with you and your audience an important topic so great to have a chat about it.
Nick Fox: Brilliant, so Bruce how effective, do you think the payment times reporting scheme will be at achieving its goal of reducing the time it takes larger businesses to pay their small business suppliers?
Bruce Billson: Look I'm optimistic it'll play a very positive and constructive role, it's evolving and being developed as it's rolled out there's some greater granularity to come in in subsequent reports but I’m also hopeful that it doesn't take reporting frameworks to have businesses do the right thing. Good business pays - it's as simple as that, I mean the economists in all of us would recognise the cost of funds for a small firm or a government department would invariably be less than that for small business, so it doesn't make a lot of sense pushing out extended payment times in the hope some modest economic gain when theoretically it'll be picked up on the way through anyways so let's do the right thing and hope corporates don't need the nudge that this reporting framework offers, and we see an improvement in payment times overall because it's the right thing to do.
Nick Fox: Absolutely, and I think a comment I heard the other day was a rising tide lifts all ships.
Bruce Billson: it's a cultural thing too Nick , there was a time when some corporates thought they were pretty clever pushing out payment times to some astronomical length and then claiming a windfall. In terms of their own cash flow and some gains for their enterprise, I think that was a quite short term and not a terribly constructive worldview. I think most corporates have recognised that and the payment times reporting framework will give greater clarity for those that are doing the right thing not only an aspiration, but in actual delivery as well.
Nick Fox: Absolutely, so what surprised you about the results of the Payment Times Reporting Register?
Bruce Billson: Well, probably a couple of things. One, more people reporting then was anticipated, I suppose, the way in which that corporate entity classification and subsidiaries were reporting under the banner did see a large range of entities coming forward, and I think that's probably good you don't want the head office or your Primary structure to be doing the right thing and all of your subsidiaries and other mechanisms not doing the right thing, so I thought you know the aggregation of that data the bringing in of broader entities, into the reporting framework, in many cases by choice from the primary lead enterprises was a good thing.Secondly, the fact that it was up in a reasonably short period of time and there’s been a great level of engagement and, thirdly, the sense that, in the early days, I was already hearing from some corporates that the first round results weren't their best selves that they are improving they’ve put policies in place to improve and that we should look forward to seeing better results in the reporting periods to come.
Nick Fox: Absolutely, so who are the impressive companies on the register? Were there any stand out performers you think that deserve recognition?
Bruce Billson: Look, I won't name names, it's early days, you know it's the start of the reporting cycle, and this is the first outing if I could put it that way, so I'm mindful that some firms are finding their feet or adjusting internal processes. I did notice in some of the mining areas that had been attracting a deal of criticism over the years were conveying an improvement and then have set themselves some policy goals to improve even further - in some parts prompted by COVID. You know, a real awareness that paying small and indigenous supplies in a very timely way was good for their communities and the economies within which the big miners operate so I'm looking forward to seeing some upside in that and further improvement in reporting periods to come.
Nick Fox: Absolutely and that's some of the messaging the were receiving from our clients so speaking of those large businesses, have you heard anything from them and, additionally, are there any messages that you want to convey?
Bruce Billson: Well, a couple, yes, a few have reached out to me on a range of things as you'd know my agency has been very active around payment reporting times for some time some period, my predecessor Cade Cornell was very engaged and I'm likewise very engaged so we've got an established set of relationships with a number of big corporates that may have come to our attention from not being their best selves but have indicated a policy commitment to improve. Some have been keeping me informed of those commitments to improve and some have reached out to say look this first reporting period isn't the best version of our performance it's a time of transition and to look forward for further improvements to come so I'm encouraged by the engagement, the fact that people know it matters enough to I suppose explain themselves and that's also a part of the discussion that's going on with treasury where corporates have sort some capacity to shed some colour and light around the data itself as that the richness of the data is improved as treasury drives the whole reporting framework forward.
Nick Fox: Absolutely, now to the other end of the spectrum for the small business owners, how should they be using the register?
Bruce Billson: Well, a couple of ways, one is it's a great accountability tool because it does measure aspiration, or you know express terms and then what's actually delivered so where there's a gap there that's certainly something that can be drawn to attention. Secondly, being sure footed in knowing what the terms are you're entering into is good for small one family business supply, I mean now they know what's being said they'll know what the performances is and they can make judgments about supplying and on what terms, or what they're looking for in terms of that commercial relationship.And thirdly, I think there's a really positive sentiment that we can do better, as you know, a private sector.Within the Australian economy, I mean long payment times it's just bad form it's not cool to push them out extended periods and expect small and family business supplies to carry the burden of that decision, and I think the accountability, the focus, even though the public discourse through the media and elsewhere that's a good thing, and there may even be scope for the ASX and others to recognizs this as an important corporate governance performance criteria and we'll see a richer conversation over time or contributing to improve performance good business pays, and this is setting the framework to encourage and then report on that.
Nick Fox: that's really good, a good piece of advice there so in terms of the feedback you're receiving from small businesses about this scheme, is there any positive feedback or have you seen any changes in behaviour in the large businesses so far you touched on that before but is there anything specific you're hearing from the small business supplier at all?
Bruce Billson: The small business and family enterprise Community are very encouraged that this is seen as a policy priority and something that matters to all of corporate Australia after they've known how critical it is for them for generations for their decades. You know cash flow is so fundamental to business viability and survival and when you're at the pointy end of poor payment time performance you’re pulling your hair thinking I’ve done all that's required of me I just can't get paid that's a pretty horrible space for small business to be. In our case, we get probably you know 15 - 20% of the cases that come to us looking for assistance have some payment time dimension or some payment concept attached to them so it's an ongoing course of grievance and hardship for small business, the fact that it's being picked up at a policy level by government. This accountability framework with the reporting times information being out there in the marketplace, is important. And you know I even see some ambitions for the future, I know, in the UK, a similar model was followed by really enhanced use of the data in communicating to customers through Apps and other mechanisms so that they can see who's doing the right thing in the supply chain and who's playing funny buggers and so I think that's all good news for small business. There is scope to empower small business supplies and even consumers further and the corporates by their responses showing they realise this matters and a number of making really encouraging policy commitments to get those payment times down, particularly for this small family and indigenous business supplies, so I think that's a good sign.
Nick Fox: That's really good. So, in terms of the supply chain finance this has been really pilloried in the press recently, do you think there's a place for it in our payment system?
Bruce Billson: Well, it has been pilloried because in some cases it's deserved it, so you know let's not get away from the fact that there's been some entities that have really gamed that mechanism as a very poor excuse to push our payment times and then say to small business suppliers well of course you've got this other option you're going to cop a clip on the way through to get paid in a reasonable time but there it is, I mean that's hardly good form and it's not cool in my eyes. However, the mechanism itself has some merits. If you and I, Nick we're running you know we're coming into summer everyone's wanting to deck out their outdoor entertaining areas we were in that space and we had a great opportunity to grab some stock but it had a seven day sort of window for payment to get that stock yet we're waiting on 30 day payment coming our way for other goods that we've supplied, well, it might be in our interest to use supply chain financing to get our hands on hard cash to take advantage of that supply opportunity, of course, but it's not satisfactory if you and I, or others thought we were clever pushing out payment times and then steering you know small and family and indigenous suppliers that can afford to carry that cash off to a supply chain financing mechanism, just because there was you know a smart move, a slick move by us, because we were in a position to do so, and then say you can get the cash in a respectable time but here's a few clips to wear to pay for that privilege that's not cool, that's not okay. So, you know, it has a place, but as a standard practice of some kind of antidote to unreasonably long payment times that's not what it should be used for and in some cases where it has been, it's deserved the condemnation that's flowed.
Nick Fox: Absolutely, so more like standard payment terms of 30 days and then down to 7, initiated by the vendor. That’s where we can get a nice discount.
Bruce Billson: And weigh it up with other financing options, I mean the cost of funds, these days, it might be attractive you know check the terms check the clip it might be more attractive than finding some other working capital arrangement to take advantage of a you know, an opportunity that's too delicious to miss, but you know the cash sooner than the reasonable terms on which you were expecting income coming into the business, so I mean there is a place, but you know that scenario we describe is not a big corporate using its muscle over a small family business to say it’s 90 days suck it up sunshine. Oh, by the way, if you are really aggrieved about it going, you know go and shed a few percentage points off the, off the ticket price, and you can pick your cash up earlier that's not cool. It's in that mode it's deserved the condemnation that has come its way.
Nick Fox: Absolutely, so anything else you'd like to add?
Bruce Billson: Well, let's keep the conversation going, I mean you know the economist in all the Deloitte‘s crew would see cost of funds would be to the advantage of a big business in almost every circumstance. So, doesn't make a lot of economic sense to push out those times and against a small business who's got a bankroll that period in between so there's a strong argument. I like the idea that good business pays and I think there's some scope for us to build upon the evolving payment reporting framework that's got more installments and greater granularity that come to put more information in the hands of consumers and businesses to help them make better choices. Land their business with those that are paying on time - good business pays, I think that's the opportunity that's a bit of a sneak but great to be with you and your audience.
Nick Fox: Great, thank you very much, and I really appreciate your time today.