Two proposals to prevent late payments welcomed

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Small businesses and sub-contractors here are welcoming new proposals to make the big boys pay their bills on time, and say it also needs to include payments from government departments.

Minister for Small Business Stuart Nash is considering stricter rules around payment practices between businesses.

“Late payments from large organisations to smaller suppliers can be crippling for these businesses,” Mr Nash said.

“I am prepared to legislate if necessary to set minimum standards for payment terms . . . I have released a discussion document which sets out options for further action. I want to hear feedback from those affected before taking next steps.

“Late payments impede business growth yet are common. They are often imposed on a small business by larger enterprises which have greater bargaining power. Late payments effectively force small suppliers to be a source of free credit.

“When small businesses are paid late, many owners have to resort to personal savings or take out bank overdrafts to cover their business expenses. Research by Xero indicates that on any given day, more than half of small businesses are owed at least $7000.”

Mr Nash proposes to introduce a maximum payment term of 20 days to ensure small businesses are reimbursed for their services more quickly, and also to give small businesses the right to charge interest on overdue invoices, and debt recovery fees for late payments.

Feedback from Gisborne Chamber of Commerce members highlighted the seriousness of how late payments effect businesses here.

“From my perspective, I'd be delighted if I only had $7000 overdue each month,” one business owner said.

“For us, it's not the financial burden (we can absorb this) but the fact it wastes so much of my time following up when I could be focusing on other activities. The irony of this coming from government is that for us, government organisations are the worst in paying late — it's great that they are going to have to pay within 10 days. However, government departments I deal with have cumbersome AP systems, high accounts payable staff turnover and those that are left are generally useless, so the Government will need to invest here (but will they?)”

The other issue was large companies that dictated their terms of payment — some of which were 60 days.

“Somehow, I think they can afford to pay us on our terms which are 20th of the month.”

However, there was still a lack of detail on how a small business would be defined, and whether the changes would include overseas businesses, as well as what recourse businesses would have if customers continued to pay late.

“The devil will be in the detail, but at least it's a step in the right direction.”

Other chamber members echoed frustration with corporations and government departments who were “less like to play ball”, as one put it.

Other members summed up the present situation as “far from being fair or reasonable”.