Expert Advice

Ombudsman’s observations on those overdue

B2B Editor6 June 2017

Ombudsman’s observations on those overdue

In her relatively short tenure as Australian Small Business and Family Enterprise Ombudsman (a descriptor for which even the acronym ASBFEO appears too long), Kate Carnell and her staff have not taken a backward step in inquiring into some controversial economic issues.

In her most recent report, Ms Carnell proudly eschews those who would otherwise ignore the proverbial room-bound elephant, having initiated her own investigation into late payments as a driver of business and economic underperformance and distress.

In its headnote, the imaginatively-titled ‘Payment Times and Practices Inquiry – Final Report’ observes:

“When a business experiencing extended payment times also experiences late payments it will stress the business further with significant ramifications for the solvency of the business. Aside from these business challenges, there are a range of personal effects which spill-over including mental health issues.
Something must be done. [emphasis added]”

Whilst perhaps obvious, the statement is indicative of the pervasive reach of solvency-related issues into the ‘third rail’ of Australia’s health system – mental health.

Late payments in business, for which Australia ranks well behind such economic luminaries as Mexico, South Africa and Poland, at a 2015-average of 26.4 days late, seem reflective of the Antipodean attitude ‘she’ll be right’. But it is this root cause of economic ripples in respect of which the report seeks to illuminate the motivators, and some important messages therein, regarding payment accountability and responsibility.

Statistics from the Australian Securities and Investments Commission1 reflect the concerns of the ASBFEO – poor cash flow, high cash use and poor strategic management leading the way as the most commonly reported indicia of business failure from insolvency professionals’.

So, is legislating for proper payment terms the answer? Perhaps. That much is suggested by Ms Carnell’s report. However, the total cost of undertaking proceedings to have an offending corporate debtor wound up is often more than 10 times that of issuing the prerequisite creditor’s statutory demand to enforce those terms! So, it’s an access to justice issue then? Again, perhaps. But business is often its own worst enemy. In the mudslinging world of corporate insolvency, where director reputations are readily pilloried once their companies subside, isn’t it better practice to avoid being the small business ‘boy who cried “Wolf!”?

The take home – if you have trading terms, enforce them and better still, don’t start a legal process you’re not prepared to finish. Remember, if you give an inch…

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Tony Lane is a Registered Liquidator at Vincents.
For more information, contact Vincents on (02) 6274 3402

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