Legislation in Australia to support businesses during the current COVID-19 crisis have been making the news this week. The first story concerns Australia-based firms that export goods and services abroad. Australian exporters impacted by the COVID-19 crisis will now have access to business-saving loans between A$250,000 and A$50m under a new A$500m capital facility to be administered by Export Finance Australia.

The COVID-19 Export Capital Facility will target loans to established and previously profitable exporters who, due to COVID-19, are unable to gain finance from commercial sources. Federal Trade Minister Simon Birmingham said the COVID-19 Export Capital Facility would help trade-exposed businesses, including those from regional Australia and businesses in the tourism and education sectors, to get through this crisis.

“These are tough times for many trade-exposed businesses who have been some of the hardest hit by the COVID-19 crisis,” Birmingham said. “Rising export costs, disruptions to supply-chains and loss of markets are some of the factors that are making it difficult for exporters to access vital commercial finance. We are currently in a difficult credit environment and these loans will provide a lifeline to Australian exporters to help them maintain their operations. This critical financial assistance will help exporters to get back on their feet through helping to re-establish markets, or provide working capital support or help exporters purchase new equipment to expand their operations.”

The COVID-19 Export Capital Facility complements other initiatives to sustain exporters, and position them to rebound, including the Small and Medium Enterprises (SME) Guarantee Scheme that will support up to A$40bn of lending to SMEs (including sole traders and not-for-profits). Under this scheme, the Government will guarantee 50% of new loans issued by eligible lenders to SME up to $250,000. In addition to the COVID-19 Export Capital Facility, Export Finance Australia will also provide assistance to its existing customers through access to credit and financial relief.

Payment terms legislation proposed

In addition to the financial support on offer, the Australian government is also looking at legislating payment terms to a maximum of 30 days. The Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, has called for federal legislation requiring small businesses to be paid in 30 days.

This is a key recommendation made in ASBFEO’s final report regarding its Supply Chain Financing Review, released by Carnell, which reflects a recent surge in larger businesses pushing out payment times to their small business suppliers as a result of the COVID-19 crisis.

“Large businesses extending or in some cases, suspending payments to small businesses are on notice that this behaviour is unacceptable,” said Carnell. “There’s no denying businesses of all shapes and sizes are enduring extraordinary challenges as a result of the Coronavirus crisis, but small businesses are being hit hardest. Many small businesses have been forced to close their doors and a lot may not survive the coming months, even with significant support from the government. That’s why it is more important than ever to ensure small businesses are paid on time.”

The concern around supplier payments is that late payments can have a more dramatic impact on the cash flow of smaller firms, in many cases leading to insolvency.

“Legislation requiring SMEs to be paid in 30 days is the only way to drive meaningful cultural change in business payment performance across the economy,” Carnell said.

The proposal in Australia follows legislation that was recently tabled in the UK that stipulates a uniform 30-day statutory limit for payment of invoices and provides for enforcement of financial penalties for late payments.

“Our Review has revealed the voluntary Supplier Payment Code is not effective,” added Carnell. “There is no compliance monitoring and it is actually unenforceable. This is consistent with similar systems internationally. While we support the Payment Times Reporting Framework as a useful tool, it’s unlikely to result in the systemic change that is needed. When used appropriately, supply chain finance is a legitimate and effective product that can be used to free-up cash flow for small and family businesses. In fact, it may be particularly useful to small businesses that need to be paid faster as they navigate their way through the COVID-19 crisis. However it is critical that harm inflicted on small businesses as a result of misuse of these products be urgently addressed.”