Small businesses will save money on interest payments and have more money to invest, under a new government policy.

The federal government will now pay small business suppliers within 15 days.

It comes in response to the Inquiry into Payment Terms and Practices, which the small business ombudsman, Kate Carnell, published in April 2017.

Ms Carnell welcomed the government’s reform and praised its willingness to lead by example.

“This is a game changer for small businesses and family enterprises that provide goods and services to the government,” she said.

“Cash flow is king for small business, and this will make a huge difference. It will save money on interest payments, boost confidence and free up capital for reinvestment.”

The Inquiry into Payment Terms and Practices found that late payments have been a perennial problem for Australian small businesses.

Ms Carnell said overseas experienced showed that faster payment times can produce significant benefits, including:

  • Reduced financing costs
  • Higher employment
  • Higher wage growth

It is now up to state governments and big business to follow the federal government’s lead on payment times, according to Ms Carnell.