Telstra has received a nod by the Federal Government for committing to improve the timeliness of its supplier payments.
The Federal Government’s Payment Times Reporting Framework policy, which was first announced in 2018, aims to reduce the time it takes for small- to medium-sized business to get paid.
In an update on the outcomes of the policy, Senator and Minister for Small and Family Business Michaelia Cash specifically referred to Telstra as one of large businesses that was improving its payment terms with suppliers.
“This legislation is all about transparency. So when big business react so quickly to community expectations in this instance, we know that they will be equally influenced by the Payment Times Reporting Framework,” Cash said.
“Slow or deliberately delayed payment times have a significant impact on small business cash flow and viability. This will be a landmark reform which will encourage fairer and faster payment times for small businesses.”
The policy will be introduced to Parliament as legislation during sitting days in autumn.
A Telstra spokesperson explained how the telco has moved to improve its payment times and also confirmed that it has cancelled its supply chain finance (SCF) option, which has been available since FY18.
“We introduced an online platform which gave suppliers access to a supply chain financing option. Telstra does not receive any financial benefit when suppliers choose to use of supply chain financing. We do not have a direct involvement in the agreements between suppliers and their supply chain finance provider,” the spokesperson told ARN.
“Financing arrangements were negotiated between the supplier and a funding provider, with suppliers able to take advantage of Telstra’s strong credit rating to receive interest rates well below the average cost of borrowing. Our obligation is to pay invoices on time, without any change.
“We had received positive feedback from some suppliers who have told us SCF gives them a simple, safe and low-cost way to manage their cashflow. However, we have made the decision to stop enabling a supply chain financing option and are working through how that will occur in a way that doesn’t disadvantage our suppliers.”
The reasoning behind ending the option was due to “concerns raised by stakeholders, including regulators, MPs and the media,” according to the spokesperson.
The spokesperson added that the telco is considering its payment terms and the definition of a small business — it currently uses the definition by the Australian Bureau of Statistics, which is a business with 5 to 19 employees.
Telstra’s history with supplier payments saw the telco make the commitment in FY17 to pay all small businesses within 30 days, and has paid nearly 800,000 invoices worth $1.5 billion since.
In addition to the SCF platform, FY18 also saw Telstra reset payments for larger suppliers to 62 days after the end of the month of the date an invoice is submitted in.
“When making this change we looked at global and local peers to develop a benchmark, and even with the change our terms remain more favourable to suppliers than those of some of our peers,” the spokesperson said.
“Over a two-year period, we worked directly with as many suppliers as possible to discuss the change with them. This shift in payment terms created a relatively small, but important one-off improvement in our cashflow.