We’re not so sure if the new Business Council of Australia small business ‘pay on time’ voluntary Code actually commits big businesses to pay on time. There are major loopholes that can make it look like a business is doing the right thing but still enable them to delay payments.
Our analysis is as follows.
Some notable big retailers not ‘in’
The BCA’s introductory blurb to the Code lists the companies who have signed up. It’s a pretty good list with Telstra, the banks, etc. However, what stands out is the absence on the list of any of the big retailers—particularly Coles and Woolworths.
Our experience is that the worst behaviour on late payment, even non-payment, is exhibited by the big retailers. Therefore, without them being included in the code the BCA’s efforts look comparatively minimal.
Codes ‘correct invoice’ hook
The essence of the Code is that signed-up companies agree to “Pay eligible Australian small business suppliers within 30 days of receipt of a correct invoice.”
The hook here is ‘correct invoice’. What we’ve seen of the behaviour of middle to upper management in many large companies is game play that prevents supplier invoices from being processed into the companies’ systems. That is, they play bureaucratic games to delay an invoice being categorised as a ‘correct invoice’.
There are set patterns to this ‘game’ including:
- Invoices will go ‘missing’. When this happens, the supplier is required to resupply the invoice.
- The retailer will make deductions from the invoice without contacting the supplier or seeking approval. The supplier is left to discover the deduction, chase it up, argue the case, try and get the deduction reversed if not valid and resupply the invoice.
Further, and as standard processes, the big retailers have slow bureaucratic procedures before an invoice becomes a ‘correct invoice’. Their bureaucracies operate something like this:
- Payments to suppliers are usually processed on days -1, +1, +2 from month end, accompanied by a remittance advice.
- The supplier only knows of any deductions or short payments once they receive the remittance advice.
- Payment allocations and account reconciliations take between 3-5 working days after month end.
- The supplier requests the paperwork on the deductions which could take between 2-4 weeks, as these include promotional claims and trade spend claims, etc.
- Each big retailer has a different process and any claims have to be raised on their standard template and sent to them.
- Claims need to be sent to a centralised e-mail address – no contact details are provided to be able to talk to individual retailer staff members. It’s a communications ‘black hole’. The documented response time is 3-5 working days, but typically the supplier does not receive any responses until they follow-up several times.
- The retailers then request copies of invoices and Point Of Delivery (POD) documents which then go to a different team for investigation and into a queue.
- The retailer’s investigation team then contacts the relevant stores one by one and requests them to raise Goods Receipts so that payments can be processed – this takes 2-3 weeks or more, depending on the supplier.
- If/when the Goods Received documents are raised, the payment related to that store is then included in the next pay run.
- Suppliers often have to re-send invoice and POD copies multiple times, as the only contact is a centralised team. In most cases suppliers end up having to explain the circumstances to different team members each time.
- In the case of reversal of claims deducted, the process takes longer, as suppliers are asked to contact the Buying Team or Supplier Relations teams to gain approval for reversals, and they typically take longer to investigate and respond.
In addition, any invoice sent after around the 22nd of the month (between 5-7 working days of month end depending on the major retailer), is automatically treated as the next month’s bill, as they will not process the invoice for payment until they have received all the documentation from their stores.
In all, this big retailer-imposed process ordinarily means that an ‘invoice’ does not become a ‘correct invoice’ until some 30 to 90 days after supply of goods.
To rub financial salt into the small business suppliers’ wounds, the retailers routinely claim settlement discounts on those invoices as well.
The retailers either have hopelessly inefficient invoice-processing systems or their ‘inefficiency’ is designed to delay payments.
Take this scenario. If the average cost to Coles of buying a product it places on its retail shelves was say (only) 25% of the listed retail price, big cash-flow advantages follow if payments to suppliers are delayed. Coles food and liquor sales for the first quarter of 2017 were reported as $7.85 billion.
On this admittedly hypothetical scenario, for every 30 days that Coles can delay payment to suppliers, it makes available to itself some $650 million dollars of interest-free cash. ($7.85 billion divided by 3 months by 25%). Delay payments by 90 days and that approaches $2 billion of interest-free cash. This simple scenario demonstrates why the big retailers could have a strong motivation to delay payments.
There don’t appear to be any justifiable technical reasons for these payment processing inefficiencies. Coles and Woolworths both offer credit card facilities to customers. If a consumer buys something on a credit card, the transaction appears within days online. It is simply unimaginable that the big retailers are incapable of having electronic transaction management for their purchases from suppliers where everything is handled online within days to verify a ‘correct invoice’. Any excuse that ‘real time’ electronic transactions are not possible beggars belief.
Is the BCA Code a con? Here’s the test: Dispute resolution
The foregoing story of the big retailers’ processes may not, and possibly does not, apply to the current list of companies that have signed up to the Code. If so, the Code could have validity. But here’s the test.
If the Code is really genuine and not just a public relations stunt designed to delay Parliament’s passing legislation to require prompt payment, it would include a strong, independent dispute-resolution process.
But on dispute resolution the Code says:
Resolution of complaints for non-compliance of the code
Signatories should have an internal complaints resolution process, with details of this process published on their website. Signatories should undertake to resolve complaints fairly with small business suppliers, in good faith.
Should a complaint be unresolved through the internal process, the supplier may contact the Small Business Commissioner in their state or territory, or to the Australian Small Business and Family Enterprise Ombudsman for advice. [Emphasis added.]
The important point here is that the BCA’s Code does not commit any companies to cooperate with the Small Business Commissioners or take notice of any investigations or recommendations a Small Business Commissioner may make.
The test of a genuine code is if the signatory companies are prepared to have applied to them the discipline of an independent dispute-resolution process. That’s what the Small Business Commissioners do. They supply a cheap, non-legalistic dispute mediation process with lawyers removed from the process. The SBCs’ approach is to look at commercial facts. That’s what’s needed. This process redresses the power of big over little.
Our conclusion is that the BCA Code is more public relations than substance. Independent Contractors Australia does not endorse the BCA code.
We call on the BCA to amend the Code so that it commits companies that sign up to it to adhere to a genuine, independent dispute-resolution process.