Australia Leader Sites Corporate Extortion of Small Suppliers

In a 5 April article in the Australian publication The Age (which I encourage you to read here), Australia’s small business ombudsman Kate Carnell singles out Mars, Kelloggs and Fonterra for abusing suppliers in Australia.

Some of her findings include:

  • Mining companies are bad, the big construction companies are bad, it seems that the worst offenders are those multinationals headquartered out of the United States," she said. "What's being put by these companies is, 'in your contract is 120 days, but we have an arrangement with the bank where you can get a loan and we can organise that at a few percentage points lower than the market and we are using our size to deliver that so aren't we good?'"
  • A Mars spokesperson says of the 2000 suppliers Mars does business with in Australia only six per cent have payment times of 120 days and of these approximately half are small-to-medium enterprises.  The spokesperson says the remaining 94 per cent of Mars suppliers have payment terms "significantly less" than 120 days with 91 per cent on payment terms of 60 days or less. The spokesperson says two-thirds of those SMEs with payment terms of 120 days have accessed its "supplier financing program".
  • The world's largest dairy exporter Fonterra  confirmed it is offering finance to small businesses. A spokesperson for Fonterra says globally Fonterra has a standard payment term of 61 days from the end of the month that the invoice was sent (a potential payment lag of 92 days). The dairy giant offers a "number of options" for payment including instant credit card payments for smaller purchases up to $1000 and supply chain finance.
  • Kellogg's confirmed it has moved its payment terms to 120 days.

Peter Strong, chief executive of the Council of Small Business of Australia says legislation is needed requiring small businesses to be paid by a certain time. He went so far as to call supply chain finance a rip-off.

It will be interesting to keep an eye Down Under, as Australia is also leading the way on capping interchange.   On July 1 2017, the interchange fees will be capped at 0.8% for all Australian-issued Visa and MasterCard credit cards, as well as American Express 'companion cards' issued by ANZ, Commonwealth Bank, NAB and Westpac in their popular two-card 'combo' packages.

Governments are now becoming more aggressive about making laws around commercial relationships.  Government initiatives in the States such as SupplierPay have had limited success, and England’s Small Business and Employment Act of 2015 required the UK largest companies and LLPs to report on a half-yearly basis on the ri payment practices, policies and performance beginning April 2017.  The Netherlands previous payment law was ineffective for SMEs, so another new law was approved by the Senate of the Dutch Parliament in March 2017. This law says that buyers can’t offer their small and medium sized suppliers payment terms of more than 60 days.  

What do you think about commercial payment practices and what I like to call the stick (term extension) and carrot (early pay options) approach? Is it a rip-off? And should we have Government legislating payment terms?

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Voices (3)

  1. Robert Kramer:

    Hey David,

    I think I prefer critique to rant.

    I know you get it and were just covering the story, but someone had to speak truth to power! If Ms. Carnell and Mr. Strong are interested in some trade credit or trade finance advisory work I’d be happy to take them on, assuming their payment terms aren’t too long of course.

  2. Robert Kramer:

    I thought Supply Chain Finance was a “win-win” for both buyer and supplier, n’est-ce pas? Look, this hand wringing about payment terms when combined with SCF doesn’t make any sense, never mind tossing out terms like “rip-off” and “extortion”.

    With a US investment grade buyer, at worst, a term extension from 45 days to 120 days might cost the supplier 0.5% of invoice value in return for sum-certain, date-certain payment through Supply Chain Finance. That’s about 70% to 80% less than typical card payment fees. In fact, in many cases the SME supplier is actually better off with the longer term and SCF. I’m surprised that not a single article takes the time to go through this simple math exercise. As an SME supplier who deals with large corporates, I would happily pay 0.5% of invoice value for payment visibility and certainty, plus I get the option to get paid even earlier than day 45.

    What really hurts small business is late payment, not long payment terms with Supply Chain Finance. As with the physical supply chain, uncertainty kills. I can’t plan for late payment, I can’t finance late payment and I don’t even get the chance to turn down the business. Articles like this distract SMEs and policy makers from focusing on the problem of late payment which is much more damaging and a real inhibitor to growth.

    Robert Kramer
    Managing Partner
    Capgenta

    1. David Gustin:

      A Wednesday Rant from Bob!

      Why dont you take it upon yourself and contact Kate Carnell and Peter Strong and educate the Aussies from your vantage point. The point of me running the piece was that Governments are starting to get involved here, which is not necessarily a good thing.

      I think your other points above I will respond to in a blog. cheers,

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