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Hope for timely payment

SMALL businesses should be cautiously optimistic with news that the WA Government is forcing its departments to pay their bills within 30 days.

The Government spends more than $5 billion a year on goods and services.

With the extra cashflow burdens imposed by the GST, many small businesses have been forced to seek alternative methods to improve cashflow such as factoring.

Through factoring, small businesses effectively sell their loan book to a factor who collects the debts. However, there are costs associated with this.

Benchmark Debtor Finance managing director Peter Langham said the time Government took to pay its bills had been a problem in the past.

However, he is sceptical that Government departments will be able to meet the commitment unless they overhaul their administrations.

“Often the payment claims get held up in the bureaucracy,” Mr Langham said.

“The UK Government put in something similar about 10 years ago except they went one step further by stipulating that public companies also give small business notice of how long it would take to pay them.

“It didn’t really make much difference in the long term.”

Premier Geoff Gallop said under the previous Government payments were not made until the end of the month following the month in which the claim for payment was made. These are normal business payment terms.

In some cases that meant small businesses could be waiting for up to eight weeks.

Dr Gallop said the former Government’s policy of making creditors wait longer for payments – known as Treasurer’s Instruction 308 – ignored the fact that many contractors outlaid considerable sums on material and equipment in order to carry out the work.

In many cases that material was bought before the job was started – often on a 30-day payment schedule.

“The mismatch between the payment timing of the contractor’s own creditors and the receipt of payment from the Government placed severe strain on the cash flow of many businesses,” Dr Gallop said.

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