How Osko can help SMEs win the slow payment time battle

- By Collaborative Media & Publishing
Strong revenue and profits are traditional hallmarks of healthy, growing companies, yet businesses can still go broke if their cashflow is inconsistent.

It represents a key risk for small-to-medium-enterprises (SMEs), which regularly suffer late invoice payments from larger businesses.

Nearly 40% of small businesses report significant cash flow pressures due to late payments, according to research by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

"One would think that if we are seeing low rates of late payments that the economy is moving in the right direction," the ASBFEO's recent Supply Chain Finance Review found. "Unfortunately, since the onset of the COVID-19 crisis, blowouts in payment times have increased."

Several large and well-known businesses have extended supplier payment times – in some cases up to six months – during the COVID-19 crisis.

Such slow payments also act as a drag on broader economic growth given small businesses generate a third of private-sector gross domestic product and employ nearly half of all workers, according to a recent report by Xero.

Some positive change, but stronger legislation a possibility

The Business Council of Australia (BCA) launched a Supplier Payment Code in 2017. Signatories pledged to pay small business suppliers within 30 days.

The BCA's code has attracted some major businesses, and covers more than half a trillion dollars’ worth of revenue, although the code is voluntary and can apply no sanctions.

Meanwhile, some larger companies such as toll road group Transurban and Woolworths Group – both signatories to the BCA code – announced plans to temporarily pay small suppliers in 14 days instead of 30 days during the crisis.

However, the code may be superseded by the Commonwealth Government's planned Payment Times Reporting Framework, which will require large businesses with over $100 million in annual revenue to publish payment information on how they engage with small businesses.

Several government departments have also pledged to pay government contracts under $1 million quicker, with the Department of Defence now paying suppliers in a record two business days.

But despite those positive changes, SMEs still wait an average of 56 days to be paid according to a recent East and Partners SME survey.

The entrenched nature of late payments has prompted the ASBFEO to call for legislation mandating 30 day payment terms for small businesses in its COVID-19 Recovery Plan and Supply Chain Financing Review.

It also made several other recommendations in its review, including greater scrutiny of supply chain financing arrangements to ensure they are not misused to delay payments.

Osko to play key role as technology speeds up payment times

While the switch to faster payment times will require a cultural change, technology also has a meaningful role to play.

BPAY Group's Osko service, which offers customers real-time payment transfers with greater information that can make reconciliation simpler, is forming part of the solution.

An increasing number of financial institutions are now routing "pay anyone" transactions through Osko, which enables a 35-character reference field and 280-character description field to be included with the payment. Information attached to the old bank transfer system was limited to just 18-characters.

"If I have a tradie that comes to do some work at my house, he or she can ask for the invoice number to be a reference for the payment transfer," says Amanda Wyllie, Lead Product Manager – Osko at BPAY Group.

"I might want to describe something else in the description text – in this way, the business receiving the payment has all the details they need to reconcile the payment."

BPAY group is currently working with New Payments Platform Australia, which manages the infrastructure that Osko runs on, financial institutions, as well as the accounting software industry, to integrate the reference information in their systems.

"It's that richer information and system-to-system reconciliation that will bring about a lot of efficiencies," she says. "There's a lot of structured data that could be included with a payment but the challenge at the moment is that the end systems can't necessarily consume that information."

BPAY Group and industry is also working to ensure that payments associated with the e-invoicing standard, PEPPOL, include a reference in the e-invoice. The e-invoicing standard allows businesses to sidestep traditional PDF invoices and manual data entry by sending secure e-invoices that are automatically recognised between different accounting systems.

The Federal Government implemented five-day payment terms, where both government and business are using the e-invoice PEPPOL framework, from January 1, 2020.

Osko is used by about 70 financial institutions and automatically runs within a customer's existing internet banking and mobile apps.

"There's so much time and effort spent by small businesses on administration and reconciliation that is time taken away from running their business," Wyllie says. "The more efficiencies we can provide with near real-time payments, and the more information that can be made available with the payment to allow them to do reconciliation easily, will also make a huge difference."

Published by BPAY Pty Ltd (ABN 69 079 137 518) email: The BPAY Scheme is managed by BPAY Pty Limited.  When you use BPAY payment products, the BPAY Scheme is paid fees relating to processing costs and BPAY Scheme membership.  Contact your financial institution to see if it offers BPAY payment products and to get the Product Disclosure Statement.  Any financial product advice provided by BPAY Pty Limited in relation to BPAY payment products is general advice only and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on such advice, you should review the Product Disclosure Statement and consider whether BPAY payment products are appropriate for your personal circumstances.

Subscribe to the newsletter

Stay up-to-date about the changes in the dynamic payments industry, both in Australia and overseas.

Success! Thank you for subscribing.