Corporates should follow Telstra’s lead and ease the squeeze on SME

ROBERT GOTTLIEBSEN
February 10, 2017
The Australian

Business columnistMelbourne
@BGottliebsen

It’s time to put out a call to the chief executive of Coles, John Durkan, the new chief executive of Bunnings, the chief executive of Woolworths, Brad Banducci, plus all other large corporation heads.

How about following Andy Penn at Telstra and paying your small business suppliers in 30 days?

I can’t think of anything more positive to stimulate the small business community and reduce supply chain costs, than a decision by our larger companies, led by Telstra, to stop the nonsense of squeezing small business people by delaying payments to 60 and 90 days. I am aware that sometimes leading companies (including supermarkets) pay selected suppliers quickly but the maximum payment time should be 30 days.

This is a nation-building subject I should have taken up much earlier but I have always felt that it was in the too hard basket. No one seemed interested. But this week I attended an amazing breakfast to celebrate the 25th anniversary of the Telstra Business Awards. Back in 1992 when I was in charge of BRW I gave great support to Don Woods at Telstra to set up and develop these awards, which were then called the Small Business Awards.

The great advantage these awards gave to small business was not so much in the winning but in the fact that the process of entry resulted in business strategies being revised.

Twenty-five years later I was hosting a panel discussing small- to medium-sized business in 2017. Right at the end of the panel discussion I put the question to the Telstra CEO: “Would he lead the Australian business and government communities and pay small suppliers in 30 days?” I fully expected him to give me a vague answer suggesting he would “look into the matter”. Instead, he said “yes”. I almost fell off the podium and the audience was hushed.

The arrangement we made on the podium was that Telstra would have about six months to get its systems in place to execute the 30-day payments. In the excitement, I didn’t negotiate with Andy Penn as to what small business meant.

It will certainly mean any supplier with less the 20 employees, which is the government definition. We might be able to get Andy Penn to extend that definition a little but the 30-day guarantee won’t go through to the very large suppliers who will have to negotiate their own deal. Full marks go to Andy Penn for having the courage to commit his people to what will be a nation-building change.

For countless decades Australia’s largest corporations and government departments have been mercilessly bleeding cash from small and medium sized business by refusing to pay their bills for 60 or 90 days and sometimes longer. It’s a national disaster. 

I think there is a good chance we can use the Telstra precedent to spread the message.

Indeed the question of paying in 30 days was actually raised at the award celebration by the Victorian Small Business Minister Philip Dalidakis who explained that he had suggested to Canberra that there be a voluntary national code for 30-day payments which the national government could promote among larger corporations and government departments.

As you can imagine, no one in Canberra could be bothered with small business, so nothing happened.

Given the Andy Penn undertaking, I would urge Dalidakis to take up the Telstra challenge and push harder for his volunteer code.

There is not much life there in Canberra regarding small business, so Victoria may have to go it alone.

Meanwhile, I suspect that at the back of his mind Andy Penn might have also thought there might be some marketing advantages leading the 30-day payments charge. I have no problem with that.

There are three points to remember about paying in 30 days:

The costs in the supply chain fall because the interest rates paid by the majors are much less than the rates small suppliers must pay.

Bankers are reluctant to extend overdrafts to small enterprises and so late paying by large corporations and governments often forces smaller groups to delay paying staff or the tax office. This can lead to disastrous situations.

A business I know is kicking goals and increasing its turnover and profitability but its prosperous customers are slow payers so the amount of working capital the small business must find has become larger and larger. This can cause good operations to fall over and certainly restricts their expansion.

Large retailers don’t always understand that because of drawn out payments, many smaller groups are not supplying them with the goods and services they need to innovate their business.