Thousands of small businesses are expected to see cash flow benefits after a Rio Tinto move to reduce the payment terms for Australian suppliers under $1 million of expenditure to 30 days.
The change from July 1 will apply to more than 5500 suppliers and about $600 million in annual procurement spending by Rio Tinto in Australia.
“Our procurement spending is vital to many small businesses in Australia and we understand that lengthy payment terms can create cash flow pressures for small to medium sized firms. We are addressing that from the start of the new financial year,” Rio Tinto managing director Australia Joanne Farrell said.
“Faster payment terms will help our smaller suppliers manage cash flow and help our local business partners to grow. A supply chain of strong local suppliers is good for our business, good for local communities and good for the economy.”
Rio Tinto’s current standard terms are 45 days from the end of month after a correct invoice has been received. These terms remain in place for larger businesses.
Almost 300 existing suppliers including Aboriginal businesses and charities are on payment terms of less than 30 days. These arrangements will not change.
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell welcomed the announcement, saying Rio Tinto was taking a positive step forwards and understanding the needs of their small business suppliers.
“It’s evident the findings from our Payment Times and Practices Inquiry is hitting home with large business. I’m glad Rio Tinto is taking action to look after their valuable suppliers,” Ms Carnell said.
“It’s just good practice to invest in small businesses. The investment Rio Tinto has with Australian small business is huge, about $600 million in annual procurement spending on goods and services.
“Other large or multinational companies should follow the example set by Rio Tinto and ask themselves how they can improve their terms with small business suppliers or contractors.”