Engineering company UGL will restore shorter payment terms for its small business suppliers, by moving from 65 days to 30 days payment terms in the new year.
In September 2019, the ACCC became aware of allegations that UGL had unilaterally extended its payment terms to 65 days on new purchase orders, and that it was advising suppliers requiring earlier payment to contact finance company Greensill Capital.
UGL also allegedly told some suppliers that, in order to be paid earlier, they would need to accept a discount on the amount of their UGL invoice, and the invoice would be paid by Greensill Capital.
The practice of requiring a discount in exchange for earlier payment of invoices is known as reverse factoring or supply chain financing.
The Australian Small Business and Family Enterprise Ombudsman has publicly raised concerns about the use of supply chain finance in combination with extended payment terms for small businesses, and issued a final report on its Supply Chain Financing Review in April this year. The ACCC has been looking into issues raised by extended payment terms and reverse factoring, including by engaging with UGL and Greensill Capital.
UGL has announced that it will reduce its payment terms back to 30 days for all its small business suppliers by early next year as part of its Small Business Policy, a move welcomed by the ACCC.
Greensill Capital also recently announced that it has taken action to cut its services to clients that did not satisfy it they had supplier payment terms of 30 days or less for small-to-medium enterprises.
"Supply chain financing is not unlawful, and in some cases can be a good option for small businesses. However, we are keen to ensure that supply chain financing is not used to push out payment terms for small business suppliers or require them to accept a discount in order to be paid within 30 days, especially during the COVID-19 environment," ACCC Chair Rod Sims said.
"We are pleased these two companies have announced that they will take action to ensure that their payment and financing arrangements do not disproportionately burden small business suppliers."
"We will continue to monitor the use of supply chain financing and extension of payment terms in small business contracts to identify conduct that raises concerns under the Australian Consumer Law, especially the provisions relating to unfair contract terms and unconscionable conduct," Mr Sims said.
"Ensuring that small businesses receive the protections of the competition and consumer laws is a priority for the ACCC."
Background
UGL is an engineering company that provides construction, maintenance and asset management services both within Australia and internationally.
Small businesses can lodge a small business report with the ACCC or contact the Small Business Helpline on 1300 302 021.
Issues impacting small businesses in the construction industry can be reported to the ACCC's Commercial Construction Unit anonymously at ACCC.gov.au/ccu or contact the Infocentre on 1300 302 502.
Information about Unfair Contract Terms and Unconscionable Conduct can be found on the ACCC website.
