Kate Carnell is investigating payment terms and conditions for subcontractors working on government projects.

Australia’s small business ombudsman has written to seven government departments seeking information about their procurement and payment policies.

It comes as Kate Carnell investigates payment terms and conditions for subcontractors working on government projects.

Ms Carnell said subcontractors are vulnerable to delayed payments, which can damage their businesses and affect the wider economy.

“Cashflow is king. A lack of cashflow is the leading cause of business insolvency and this underscores the importance of prompt payments,” she said.

Most government departments pay their invoices within 30 days, but when a prime contractor is appointed to manage a project, it often takes longer for money to reach subcontractors, according to Ms Carnell.

“Government agencies and prime contractors should ensure that payment terms and conditions throughout the supply chain are no worse than those in the head contract,” she said.

“It’s not good enough to leave responsibility with a head contractor and overlook small businesses who do much of the work.”

An earlier inquiry by the small business ombudsman recommended that the government pay invoices within 15 days.