Federal agencies will soon start paying e-invoices within five days or pay interest on any late payments.

Finance Minister Mathias Cormann said this five-day deadline will apply to contracts valued up to $1 million. It also requires the small business supplier and the federal agency to use the internationally established framework for e-invoicing.

“We are now prioritising e-Invoicing adoption across the commonwealth,” he said.

“The Department of Finance and Services Australia will be the first commonwealth agencies to accept e-invoices from 1 January 2020, with other agencies implementing the capability over the course of the year.”

Australia’s small business ombudsman, Kate Carnell, said this new policy would improve cashflow for small businesses, giving them the confidence and the capital to re-invest.

“This is a game-changer for e-invoicing small businesses that are directly engaged in a contract with a federal government agency,” she said.

“The next step would be to apply this to businesses right down the supply chain.”

Ms Carnell said the average paper invoice costs $30 to process, compared to $9 for electronic invoices.

“Around 20% of traditional invoices are sent to the wrong person and about 30% contain incorrect information – delaying payment,” she said.

“In fact, research shows the Australian economy would benefit to the tune of $28 billion over a decade if all businesses switched to e-invoicing.

“This federal government e-invoicing payment initiative sets a benchmark for all states, territories and big business to follow.”