PM must act to speed up firms’ payments to suppliers

ROBERT GOTTLIEBSEN

JANUARY 28, 2020

The Australian

From the Rio Tinto head office in St James’s Square in London, chief executive, French-born Jean-Sébastien Dominique Francois Jacques probably thinks that his company is actually doing the right thing by the Australian nation in the way Rio Tinto pays suppliers.

But Jacques and his head office people are far too remote and the Australian actions of his company have caused the ACCC chief Rod Sims to call an inquiry and Small Business Ombudsman Kate Carnell to say that what head office says about the way Rio Tinto pays suppliers does not accord with what suppliers are saying.

But for Rio Tinto, worst of all, Jacques is in danger of making a fool of the Australian prime minister and the company’s supplier payments practices have caught the attention of the West Australian premier.

But to be fair to the Rio Tinto chief executive, what Rio is doing is being duplicated by countless numbers of other large companies around the land. And their actions in delaying payments to suppliers are a key reason why the Australian economy is so sluggish and the engineer of growth, small and medium business is reluctant to expand.

Prior to the election Prime Minister Scott Morrison clearly understood what had gone wrong in Australia and in a remarkable address he graphically described the nation’s problem using these words: “Trade between small and medium and large business totals about $550 billion a year. Healthy cash flow is critical to these businesses. This issue is being consistently raised with us, of course, by small and medium businesses particularly with Michaelia (Cash) as she travels around the country……completed payment terms are being pushed out to 60, 90 and 120 days in some cases. Even loans are being offered to cover extended payment terms.

“So: ‘I’ll loan you some money while I don’t pay you’.”

Once the prime minister of a nation describes what is happening in his country that way it beholds him to do something about it when he is re-elected.

And Morrison spelt out what he would do after the election. First he would set up a reporting framework covering 3000 of the largest business in Australia including foreign companies and government entities and they would have to declare that they pay their bills within 20 days. Repeat, 20 days.

And those that didn’t comply would first be shamed and then those that still didn’t pay within 20 days would lose any access to government business. It was one of the biggest promises he made in the campaign and although it was overshadowed by the ALP franking credits disaster it won him a lot of votes.

But while Morrison has tackled the government sector, he hasn’t done anything about the private sector. He addressed the Business Council of Australia (BCA) late last year and praised the fact they had a list of people complying with a fast payment agenda. But it is a list, along with the Australian Supplier Code, that is simply not working because there are too many loopholes. Rio’s Jacques is on the BCA board.

Michael Wright, the CEO of Australia’s largest building organisation, CIMIC, has decided to take Morrison and Cash head on by slowing down payments in part of his operation.

One of the saddest parts of recent Australian large corporate life is that the ethical shortcomings of the banks which were so dramatically illustrated in the royal commission have spread to wide areas of the business community.

Over the Christmas – New Year break my colleague John Durie interviewed a wide range of large corporate chief executives. I don’t think one of them raised the issue of slow payments which Morrison had so brilliantly described prior to the election. They didn’t seem to understand that it is the collective actions of many large companies in supplier payments to both small and medium sized business that is holding the Australian economy back.

Similarly in the Durie interviews there was no mention of the fair contracts act, when the large business community took on the parliament of Australia and refused to comply with the fair contracts act because it found loopholes.

When it comes to payments, as the prime minister indicated, large Australian companies are cajoling suppliers to sell debts in deals that give the financier big rates of return. Rio Tinto says that it pays small suppliers within 30 days and selling the debt to a prescribed financier is optional. There was no mention of medium-sized business, which is part of the PM’s ambit.

But in practice, well away from St James’s Square, Rio Tinto suppliers have been so pressed to discount the Rio Tinto debt to financiers that they have complained to the small business ombudsman and have triggered a brilliant set of revelations by The Australian’s Jared Lynch and Nick Evans.

And to make matters worse Rio Tinto decided to send Australian invoices to India—a move that equates payments to suppliers with trying to sort out telephone and power accounts.

Australia desperately needs the $550 billion dollars that is paid to small to medium business be paid faster. To be fair to Morrison he has sped up government payments which are now much faster. But in the private sector it has got worse. Given the change in ethics among the boards of our large corporations and/or the lack of communication with people on the ground, sadly the only way to make them act in the national interest (and their own) is the use of the stick.

In the case of fast payments, banning access to government contracts will work and stimulate the national economy.

Meanwhile the ALP understands very clearly what is taking place in the business community. It knows Morrison was right in his description of the crisis and if he doesn’t take action then Labor will make the bushfire and sporting grant sagas look like a walk in the park. And if the Coalition does not act on the Morrison warning then the ALP will take the whole small and medium business community with them.

The Prime Minister has an excellent small business minister in Michaelia Cash but fast payments is an area where he has taken the initiative. He has to take the necessary steps so that she can deliver the goods for the nation and the government.