Small businesses are the workhorses of the Australian economy. A derivative of their size, small businesses need to run lean just to stay alive. While the other end of town enjoys regular pay cycles and pontificates about bonus structures, small businesses simply need to be paid on time.

Australian small business accounts for over a third of our gross domestic product (GDP), contributing $418 billion annually. They also provide a significant 44% of the total workforce in the private sector. Beyond the statistics, they play an essential role as a source of innovation, leveraging new technologies to drive the emergence of new products and services.

The resilience of the Australian economy relies on the health of our small business sector. While it has suffered tremendously at the coal face of covid closures, the most profound impact on small business is late payment from large organisations.

“A vast number of big businesses just aren’t meeting the mark and it’s causing needless harm and cashflow challenges for small and family businesses who are waiting too long to have their invoices paid,” Bruce Billson, Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

This problem is not new. In 2019, it was estimated that $77 billion of payments to small business were paid later than 30 days, with the average payment being 63 days. Resulting from this, in 2021, the Australian Government introduced the Payment Times Reporting Scheme (PTRS). The scheme calls for large businesses and large government enterprises (turnover exceeding $100m) to biannually report their small business payment terms and times.

The potential of the PTRS is to increase transparency across the supply chain and increase pressure on large businesses to pay on time. Beyond imminent fines, soon to be introduced, brand reputation is a risk for poor payment practises. The opportunity when large businesses improve their payment terms is the protection of small businesses from insolvency and the ability for them to improve cash flow and invest in growth opportunities.

While this is a commendable government initiative, it is yet to have any reasonable impact. 

“After three reporting cycles, it is concerning that register data indicates payment terms and payment performance have not materially improved since the commencement of the scheme,” said Mary Jeffries, assistant secretary of the Treasury’s Payment Performance Branch.

In December 2022, The Payment Times Reporting Regulator announced an independent review of the effectiveness of the scheme.

“What we do want to do is to make sure that small businesses are not carrying an unfair burden when it comes to payment times,” Minister for Small Business Julie Collins said at the time.

The report from the enquiry is due to be released this month, in June. One benefit from the report will, hopefully, be to highlight suitable and non-suitable organisations for small businesses to work with in future. For anyone wanting this detail, payment reports for every large Australian business are already publicly available via the Payment Times Reports Register.

While the result of these late payment trends is clearly crippling some small businesses, it is not clear what the cause of late payments is. With clear, imminent fines and serious potential risks to brand reputation, it seems trite and oversimplified to assume that it is an arrogant power play. It seems a futile strategy.

Is it that large businesses also have cashflow problems? Is it simply that they have poor internal payment processes, or are they blocked by systemic barriers of poor data management and ineffective tools?

Common current Csuite reading centres around the adage of digital transformation; digitise, standardise, automate. While payment issues may seem as simple as poor processes in the finance department, perhaps the real pain is deeper. To truly improve efficiencies, organisations need to renovate their foundation. They need to rethink and reinvent. This means researching the current payment market for new technology and new opportunities.

At the core, digital transformation needs to start with a consolidated, clean data source. Once a data culture has been set in place, there is a plethora of technology to maintain and enhance it. Artificial Intelligence (AI) has matured to a level where it is being included in a number of readily available solutions. A study by IBM found that 35% of companies reported using AI in their business, and approximately an additional 42% are exploring it.

Improving data is a necessary pillar of a large business foundation. However, the pursuit of improving payment behaviours is an entirely new problem to solve. This is currently compounded by the severe impacts of a high-inflation market.

The good news is the increase in payments initiatives available on the market. While some large organisations will benefit from the use of these new products and services, many may just need a change in payment strategy, such as moving payment to a card. Moving payments to card can help large organisations reduce average paid days to small suppliers.

Fintech, RobobAI, is growing in popularity not only for providing accurate, compliant Payment Times reports but also for their AI data-driven, predictive modelling tools across all payment data. Their strategic alliance with Mastercard provides further potential for organisations to liberate the mutual benefits of payment-to-card programs.

RobobAI is an Australian fintech leveraging AI technology to help large organisations transform global supply chains ethically.