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Edition 60 – Are You Your Client’s Banker

Written by Dean Robinson.

I’m both alarmed and disturbed at what Big Corporate Australia is doing to family business right now. Alarmed at how unethical the behaviour is. Disturbed at the consequences for Family Business if Big Corporate Australia doesn’t correct its behaviour immediately.

A number of my clients work for large corporates. Publicly listed companies or, if they are not publicly listed, companies of significant size and stature that, for the most part, are household names.

Put simply, Big Corporate Australia is taking too long to pay their family business suppliers. I have seen instances where debts are outstanding beyond 100 days. In some instances, this is almost two months beyond acceptable trading terms. It is nothing short of unethical behaviour and I put these delays down to three factors:

  1. The need for large corporates to now pay their PAYG Instalments monthly, not quarterly.
  2. Australia switching off over the Christmas/New Year period – and taking an unacceptably long time to ramp up in 2017.
  3. Tight trading conditions and margins for some of Australia’s largest corporates.

Most family businesses are not hounding hard enough for their money. Some of them are concerned about losing the contracts they have with Big Corporate Australia. Some of them fear pushback in the form of further delays to payment if they agitate for their money. However, in each situation, this is purely Big Corporate Australia wielding economic power to their own advantage, and not caring if their suppliers and contractors are disadvantaged as a result.

The fact remains that family business should not put up with this sort of behaviour and should stand up for their right to be paid on time for services provided in good faith. Interestingly, a large number of these Big Corporates have cash businesses – that is, you can’t leave the premises as a customer without having paid for your goods on the way out the door.

It is not the lack of profit that kills family business. It is the lack of cashflow. So, to that end, here are some tips if your family business is struggling to collect payment from Big Corporate clients:

  1. Stipulate your trading terms clearly – if it is 45 days, then let them know it.
  2. Send the invoice to the right person – I am aware of situations where emailed invoices were being sent to the wrong email account. $100 000 of unpaid accounts later, the in-house accountant decided to find out what was going on.
  3. Send statements – there are still some businesses that only pay on statement.
  4. Chase for the money – at 45 days, start phoning.
  5. Have a locked in debt collection procedure – so that once you have phoned at 45 days, you phone again at 60, at 75 days you go further up the ladder with a threat to take the matter further, then at 90 days, take legal action.
  6. Take legal action – just do it! If a business receives at their Registered Office a Statement of Liquidated Claim, it will startle them into action very quickly. Once the legal avenue of recovery has commenced, it can create havoc for the Big Corporate.
  7. Withhold supply – at whatever time period that you feel suits, but before you take legal action, stop supply. Some of my clients are providing essential services to these Big Corporates. Withholding supply would mean those Corporates would be in breach of key legislation which would cost them tens of thousands of dollars. Use that as a leverage tool.

Finally, the banks have a part to play in all of this. Rather than putting pressure on family businesses at a time when it can be clearly seen that Big Corporate Australia is dragging the chain on paying, how about they turn around and ask Big Corporate Australia why they are slow paying? There are considerably more family businesses that are more profitable to the Banks than the Big Corporates are. The banks should be supporting their best customers.

This Week’s Tip

Big Corporate Australia has no right to withhold payments from Family Businesses.  If you don’t stand up for your business, you are condoning corporate bullying.   The only way to deal with a bully is to stare them down.