Take a big stand for small business

Signatories are obliged to publish the policies and practices they have in place to meet their commitments. Organisations that sign up to the code are also recognised on the Australian supplier payment code website.

The Business Council is encouraging the federal government and all state and territory governments to promote the code across Australia, including requiring their own agencies to sign on.

The Business Council worked with the Victorian Government during the development of the code to adopt a single, voluntary and national approach. We look forward to continuing to work with all of Australia’s governments to improve payment practices across the economy into the future.

The Business Council is also encouraging the federal government to explore the feasibility of establishing a small business register, which would make it much easier for signatories to identify eligible small business suppliers.

The code allows some payment time flexibility for ‘mutually agreed terms’ and ‘standard industry practice’, but only in exceptional circumstances.

Signatories to the code are, first and foremost, committing to pay small business suppliers within 30 days of receipt of a correct invoice. Payment terms such as ‘30 days from the end of the month of receipt of invoice’ or ‘payment within a 45-day period’ are not consistent with this commitment.

‘Mutually agreed terms’ reflect an arrangement where both parties agree it is in their mutual interest to apply payment terms longer than 30 days. Mutually agreed terms should be consistent with the Australian Small Business and Family Enterprise Ombudsman’s position that “longer terms could be agreed providing not grossly unfair to one party”.

To recognise standard industry practice in the construction sector, if the payment relates to construction work or related goods and services, the relevant payment period is 45 days of receipt of a correct invoice.

Exemptions for ‘mutually agreed terms’ or a ‘standard industry practice’ are to be subject to a good faith and fair dealings provision, to ensure that suppliers are afforded both fairness of process (good faith) and fairness in outcomes (fair dealings).

The Food and Grocery Code, currently before government, is expected to provide a detailed framework for applying the good faith and fair dealings provision. Once finalised, it is anticipated that this framework will help inform the supplier payment code's good faith provision.

There is no generally agreed definition of a small business – governments themselves apply multiple definitions. Signatories to the code are permitted to adopt the following criteria:

• an Australian business with annual turnover up to $10 million, or
• an Australian business that supplies goods and services to the signatory up to a maximum annual level of expenditure. The maximum annual level of expenditure is to be set by the signatory and must be published.

Exceptions may be applied for supplier businesses that are part of a consolidated group of companies.

The definitions of a small business adopted by the signatory company must be consistently applied to all small business suppliers. The definition of small business that is used by signatories must be published and easily accessible.

Signatory companies commit to apply the code to small business suppliers where it is able to verify their eligibility as a small business.

The Business Council supports the establishment of a small business register, as recommended by the Australian Small Business and Family Enterprise Ombudsman. A register will make it easier for signatories to verify the small business status of suppliers, for example, by reference to their ABN.

When the code was launched in May 2017, signatories could also choose to use a headcount definition of a small business, i.e. “companies with fewer than 20 employees”. The headcount definition was removed as an option for new signatories from March 2019, on the recommendation of the Independent Review. The review found that the headcount definition can be an imprecise indicator and difficult to determine when there are part-time employees and contractors.

Code signatories that were using the headcount definition before March 2019 are permitted to continue to use it.

Signatories must publish, in plain English, the policies and practices they have in place to meet their commitments.

This added transparency ensures small businesses and other stakeholders can easily find information about how companies will meet their commitments and what policies and practices are in place to benefit them. It helps to make signatories publicly accountable for meeting their commitments under the code. The publication of policies and practices should be in an easily accessible location, usually on the signatory’s website.

The code does not require signatories to report on payment performance. However, companies are free to provide any additional information over and above the commitments in the code, and this may include reporting on their payment performance if they wish to do so.

Small business suppliers need to engage directly with code signatories to access the payment terms on offer under the code. All code signatories are listed on this website.

Signatories that signed the code before March 2019 had 18 months from the date that they signed up to the code to be compliant with the code, while signatories that signed the code after March 2019 are provided with an implementation period of six months (an implementation period longer than six months may be permitted if a signatory can demonstrate exceptional circumstances due to the complexity and size of their supply chain or payment systems).

In September 2018, an Independent Review of the performance of the code was overseen by former Chair of the Australian Competition and Consumer Commission, Mr Graeme Samuel AC. Mr Samuel was supported by an expert advisory panel.

The review found that the code is fundamentally well-designed and fit for purpose. Individual signatories report that it has led to changed practices and faster payment times to small businesses.

The review made a number of recommendations to address issues raised in the consultation and promote greater adoption of the code. All recommendations were adopted, with minor changes to the code coming into effect in March 2019.

Each signatory is required to put in place clear, fair and efficient processes for dealing with complaints and disputes about payment times and practices. These processes should be used to resolve complaints and disputes in the first instance.

If a signatory is not compliant it will be identified (with the assistance of small business suppliers and Small Business Commissioners) and action will be taken to remind them of their obligations and ask them to change their practices. If necessary, certification of a code signatory can be removed.

Some businesses will require up to six months to assess current payment practices and make changes to their payment systems and payment policies. This recognises that the change might require capital investment and careful management, which can take time to implement properly.

Although 6 months is the upper limit, many signatories will take a lot less time to comply with the code. Many signatories already have payment policies and practices in place and are ready to comply fully with the code at the time of signing.

Implementation periods longer than six months may be permitted if a signatory can demonstrate exceptional circumstances due to the complexity and size of their supply chain or payment systems.

The maximum implementation period was initially set at 18 months when the code was launched in May 2017 and was reduced to six months in March 2019 on the recommendation of the independent review of the code.