Ric Vatner's Blog

Posted By Ric Vatner on May 11, 2010

Business to Business Tug of war over Payments

I heard a programme about business to business payments on ABC Radio 702 this morning. In short, they’re too slow at the moment and that poses a real threat to economic recovery.

Deborah Cameron interviewed Damien Karmelich from Dun and Bradstreet who apparently keep a file on how quickly companies pay their bills. (to see the blog go to http://bit.ly/bVeP6p, unfortunately you won’t be able to hear this excellent segment as this is one of the few shows that the ABC don’t produce a podcast for).

This is not recent news, small business has been suffering since at least May 2009 and who are the worst culprits? I’m sure you will not be surprised to hear it is big business and government departments. Closely followed by small business who can’t pay their bills due to the above.

During the call in segment, small business people and in some cases their spouse or family member rang in with horror stories of how small firms such as plumbers were owed hundreds of thousands of dollars for work done. I know they are not exaggerating, I have a number of small business clients, one is owed over $600,000, much of it from councils and the bulk of the rest is owed by property developers.

Of course the consequence is that these businesses pay their creditors late and in many cases there is nothing either party can do. Even if the creditor was inclined to sue, you can’t get blood out of a stone and bankrupting a company is not only expensive it almost guarantees you will never get paid or if you do, you get your money in such small dribs and drabs it is useless.

Damien also pointed out that many of the businesses that go broke each year do so not because they can’t get work but because they can’t get paid.

My client points out that many businesses are in a bind. If you have a council as a regular client or a large property developer you can’t afford to stop working for them because they will easily find another company that will but when times return to normal, you probably won’t get any more work from them.

In the mean time you need to chase residential jobs just to pay the bills. But this is a different kind of work and a company that manages to break into the world of big business is not necessarily still able or capable of doing this type of work at a competitive rate. They have invested heavily in big equipment and while you don’t need it to clear a blocked toilet, you still have to pay the lease. The big businesses and sadly, the councils, know this and use it to their advantage.

While to the CFO of these organisations this is just a case of  “managing their cash flow” the toll it takes on small business and frankly, on the staff, the families and the small business owner, is disastrous.

Has anyone calculated the cost to the country of supporting employees who lose their job because a big organisation wants to keep their cash in their bank? What about the cost in human suffering and loss of capital due to the break up of families often directly attributable to the stress that cash flow problems cause the small business. Or of the loss of experienced small business entrepreneurs who between them employ over 49% of all private sector employment (http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1321.0Main+Features12001?OpenDocument .

If anyone tells you that Australia has escaped the worst of the GFC (global financial crisis) just tell them to go to any suburb and speak to the small business owners. When you hear a financial analyst tell you that Australia’s fortunes are tied to China, ask them how many small businesses sell products or services to China?

When a politician wants to know how the economy is doing tell them to forego their boardroom lunch at BHP or Rio Tinto and forget the banks (they forgot you years ago) and go to their local plumber, electrician or retail shop and talk to them.

If they did I think we would hear a lot less about how well Australia has fared since the beginning of the GFC.

Categories: Business, In my opinion, World Affairs
Tags: Business, Business and Economy, Dun & Bradstreet, Employment, Magazines and E-zines, Money, Private sector, Small business