The Government has today announced changes that will encourage agencies to ensure all SME contracts are paid on time.
If agencies fail to pay invoices on time, SMEs will automatically be paid interest on the outstanding payment.
Invoices will be automatically generated after 60 days for all contracts where the interest accrued is greater than $10 and the contract does not exceed $1 million (including GST).
Currently, businesses have to issue separate invoices to agencies if they want to claim interest on late payments, Minister Wong said.
However this can require additional paperwork which means many small businesses dont bother.
This change will see agencies more likely to pay invoices on time to avoid having to pay the additional interest, Minister Wong said.
Each year, around 60 per cent of the Commonwealths 80,000 contracts are with small businesses and the overwhelming majority of invoices for these contracts are paid within the specified time (97.7 per cent).
We want to see even more SME contracts paid on time, Minister Wong said.
Minister for Housing, Homelessness and Small Business, Brendan OConnor, says this change will be welcomed by small businesses.
Small businesses have an important role in providing goods and services to the Government, Minister OConnor said.
We want to build on this relationship and ensure that all invoices are paid within the agreed time frame because it does make a significant difference to a business cash flow.
Examples of types of small businesses who may be benefit from this change include caterers, newsagents, building contractors and office suppliers.
Interest will be calculated using the Australian Taxation Offices annual general interest charge rate reported on a quarterly basis. Currently, it is 11.37 per cent.
Businesses will still be able to invoice agencies directly after 30 days of late payment as is currently the case.
The automatic payment will be implemented by a Department of Finance Circular to all agencies.