KPMG Managing Partner Enterprise, a division of KPMG Australia, welcomes several initiatives by Small Business Ombudsman Kate Carnell, which includes recommendations for banks to give their business customers at least three months’ notice on whether or not their loans will be extended, to avoid hardships from late payments and allow borrowers sufficient time to organize refinancing.
The recommendation was included in a report published early this month that primarily investigates Australian banks and their dealing with small-business customers, particularly when it comes to banks foreclosing on loans without warning.
Small businesses contribute 30 per cent of income to the Australian economy, and any initiative that supports the mid-market is a step in the right direction. This recommendation is key to protecting a key Australian asset – the SME sector.
The Ombudsman also calls for the Australian Securities and Investments Commission (ASIC) to establish a Small Business Commissioner.
Such an initiative would be the first port of call for independent guidance on business disputes nationally and provide low cost mediation services with an efficient, affordable access to justice.
He also endorses the establishment of an External Dispute Resolution Scheme (EDR) with a dedicated small-business unit that would consider disputes involving a credit facility of up to $5 million across valuers, receivers and investigating accountants.
Again, such a dedicated resource for the mid-market would unblock the legal system and create administrative efficiency, as well as adding to business confidence at the time of set up and throughout the enterprise’s growth journey.
These recommendations come in the wake of new findings by the Ombudsman published on 8 February, confirming that big businesses are taking longer than ever to pay small businesses.
Conducted by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) in partnership with state-based Small Business Commissioners (SBCs), the Council of Small Business Australia (COSBOA), the Australian Institute of Credit Management (AICM) and the Institute of Public Accountants (IPA), the inquiry revealed almost 50 per cent of small businesses experience late payments on at least half of their invoices.
Small business is the lifeblood of the nation, and many smaller enterprises just cannot cope with a lack of cashflow, more so if they do not have stable and reliable sources of capital. Late payments result in lower working capital and ultimately poorer profitability, not to mention increased anxiety and stress among business owners.
The commercial and psychological imbalance of power between larger companies, which squeeze smaller ones, with little or no recourse in such situations, is a well-known phenomenon but it creates a poor business environment making it difficult for the mid-market to thrive.
In such circumstances, SMEs need to obtain the right advice on how to best manage the situation, not only from a legal perspective, but more pragmatically from a commercial standpoint.
SMEs need to resolve how to manage cashflow implications; where to source alternative forms of capital; where value can be locked into the business and how it can be liberated; and in the worst case scenario, how to stave off insolvency.
Rob Bazzani, Managing Partner, KPMG Enterprise
