Builders get tough on making clients pay up to escape debt collectors
Debt collectors are chasing more builders as the money they owe skyrockets.
21 March 2016
Debt collectors are chasing more builders as the money they owe skyrockets. Christchurch's building debt increased by about 40 per cent from 2014 to last year, big collection agency Baycorp said. Other South Island builder's debt had increased by about 45 per cent, whereas North Island debt had not increased over that time, it said. Another debt collection agency has tripled its work in the past year, mostly because of a credit crunch for building companies and contractors. "It's actually quite scary for your subbies out there at the moment", Christchurch-based debt collector Jeanette Kwant said.
Kwant's agency, Under Control, had 30 debt collection contracts in the city compared to 10 a year ago. Most of the work was in Christchurch's construction sector, she said. It had increased its staff to 14 to handle the extra work, she said. The collapse of Stonewood Homes had only increased the strain on sub-contractors, Kwant said. Acceptance of slow payments since the Canterbury earthquakes had worn off, she said.
The Inland Revenue Department was making more demands for tax, so builders facing a slowdown in the residential rebuild were being tougher with their debtors. "There's definitely been a change in tolerance. It's like a line has been drawn; 'you're over the earthquake now'." She said businesses rarely accepted 60 to 90 days for payment and were also taking a harder line on a growing belief that it was OK to pay by the end of a month, rather than the standard 20th of the month. Kwant recommended her clients ask for payment in seven to 14 days rather than risk cashflow problems by waiting a week or two longer. EY restructuring specialist, Rhys Cain, said the construction industry and related-trades accounted for most of its company liquidations at the moment.
"It's definitely very busy for a whole bunch of reasons." More than half of his 20 liquidations around the country in the past year would have in the building industry, Cain said. Nationally, about 4000 companies are liquidated every year but many of those were companies shut down voluntarily by an owner, rather than it being imposed by a court. "Not all liquidations are bad liquidations," Cain said. He expected hospitality and companies exposed to dairy farming would also be squeezed in the next 12 to 24 months. Angus Meats general manager Bernie Connolly said it used to allow a month's credit but that all changed after the first earthquakes. Angus Meats had most of its clients in the city's eastern suburbs and lost about 80 of them when companies collapsed or owners quit town. Angus Meats would have probably folded at the time if it was not for the Government's wage subsidy scheme, he said. Since then it kept a tight rein on credit and refused to supply some prospective clients.
"We have turned people away in some cases where we've done the checks and the history doesn't come up too good. I mean, leopards don't change their spots, do they?"
A week's credit was the same deal it had with its farmer suppliers and most Christchurch clients paid on time, but a nominal amount found they couldn't make a go of it, Connolly said.