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Deadline for government departments to pay their bills “game-changer” for small businesses

Commonwealth agencies will start paying suppliers within five days from next year, or face interest on late payments, as long as they use electronic invoicing.

Faster payments to suppliers from commonwealth agencies will be a “game-changer” for the small firms involved, says small business ombudsman Kate Carnell.

From January 1st, federal government agencies will start paying e-invoices on contracts valued up to $1 million within five days – or face interest on any late payments – as long as both the supplier and agency use electronic invoicing.

Announcing the change on Thursday, Finance Minister Mathias Cormann said e-invoicing will improve business cashflow through faster payment and reduce transaction costs and handling errors.

A maximum 20-day payment term will continue to apply in instances where e-invoicing is not used.

“This is a game-changer for e-invoicing small businesses that are directly engaged in a contract with a federal government agency,” Ms Carnell said in a statement.

“This policy will improve cash flow for small businesses so they have the confidence and the capital to re-invest.”

She said the next step would be to apply this initiative to businesses right down the supply chain.

The ombudsman’s own research found half of all small businesses reported late payments on 40 per of their invoices, hampering their viability.

Last month the federal parliament passed legislation to implement the internationally recognised e-invoicing framework, which allows buyers and suppliers to transact even if they have different software.

Adoption will start with the federal finance and human services departments from January 1, with other agencies to follow during the year.

“We encourage state governments and the business community to follow our lead using the new framework for e-invoicing,” Senator Cormann said in a statement.

Ms Carnell said around 1.2 billion invoices are exchanged in Australia each year.

She said research shows it costs about $30 to process a paper invoice compared to just $9 per e-invoice.

Aside from the expense, payments are delayed through about 20 per cent of traditional invoices being sent to the wrong person and about 30 per cent containing wrong information.

“In fact, research shows the Australian economy would benefit to the tune of $28 billion over a decade, if all businesses switched to e-invoicing,” the ombudsman said.

Read further on the solutions to small business late payments. 

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Loren Webb

Loren Webb

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