Almost half (41%) of dispute resolution applications to the Victorian Small Business Commission (VSBC) under the Small Business Commission Actwere related to unpaid money, according to its Annual Report 2023-24.
The VSBC is an independent statutory authority tasked with preventing and resolving disputes faced by small businesses, retail tenants and their landlords. Victorian Small Business Commissioner Lynda McAlary-Smith said this was a reminder for big businesses to pay small enterprises on time. “Small businesses are impacted by late payments in a big way and they’re often in a power imbalance with larger clients, which is when we assist.”
“Cashflow is a major concern for small business owners. Many business owners are waiting on outstanding payments for their goods and services…and in turn are stressed about paying their own bills. They don’t go into business to provide a free credit line to others.” 7,357 Victorian small businesses contacted the VSBC for information and 1,795 applications were made for assistance with disputes during financial year 2023-24. 35% of disputes were resolved through early dispute resolution and 75% of those that progressed to a formal mediation were successfully resolved. Mediation clients were pleased with the service, on average rating it 8.5/10.
Retail, accommodation and food service small businesses represented 42% of applicants for assistance. “Small businesses are continuing to feel the economic repercussions of the COVID-19 pandemic, with COVID-related debts and deferred arrangements surfacing as disputes today.” Commissioner McAlary-Smith said.
The VSBC received 929 applications to resolve retail leasing disputes between tenants and landlords. Contributing issues included disagreements on repairs and maintenance, early lease termination and make good obligations, with the majority of disputes related to money owed by the tenant, but that was never in isolation. “We encourage retail tenants and landlords to raise concerns with each other as soon as they occur for the best possible chance of achieving a positive solution before it becomes a larger dispute.” McAlary-Smith said.
The complexities of payment terms
The scourge of late payments continues to plague small businesses, leading to financial strain, delayed growth, and, in some cases, business failure. Several factors contribute to this persistent issue:
- Power Imbalance:
- Size Disparity: Smaller businesses often find themselves dealing with larger corporations that may have more leverage in negotiations.
- Delayed Payment Tactics: Larger companies may intentionally delay payments to improve their own cash flow.
- Complex Payment Terms:
- Confusing Contracts: Complicated payment terms can lead to misunderstandings and disputes.
- Excessive Paperwork: Bureaucratic processes can slow down payments.
- Economic Uncertainty:
- Recessionary Fears: Economic downturns can lead to reduced spending and delayed payments.
- Inflationary Pressures: Rising costs can erode profit margins, making it difficult for businesses to meet their own financial obligations.
- Lack of Enforcement:
- Weak Legal Framework: In some jurisdictions, enforcing payment terms can be challenging and time-consuming.
- High Legal Costs: Legal proceedings can be expensive, making it difficult for small businesses to pursue unpaid invoices.
To combat this issue, governments, industry organizations, and financial institutions can take steps such as:
- Prompt Payment Legislation: Enforcing strict payment terms and penalties for late payments.
- Dispute Resolution Mechanisms: Providing efficient and affordable ways for small businesses to resolve payment disputes.
- Financial Support: Offering financial assistance and counseling to help small businesses manage cash flow.
- Education and Awareness: Raising awareness about the importance of timely payments and the negative impact of late payments on small businesses.
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