Mainzeal had low profit margins but construction companies can be cash cows, if they are properly governed, because they always get paid first and then pay their subcontractors at a later date. Thus, subcontractors effectively fund the construction group until they get paid. However, the subcontractors are in a terrible position if the company goes bust because they are unsecured creditors and are unlikely to be paid until all obligations to secured creditors have been met.
The past few weeks have seen a spate of construction companies ceasing to trade, some of which have been placed into liquidation or receivership. These include Tower Cranes, the Stanley Group and related Tallwood companies in Auckland and Waikato, and Welhaus Ltd and related company Welstruct Ltd in Canterbury. Creditors are estimated to be owed at least $10 million from the Stanley Group. Amounts owed by the other businesses are still unknown. These sums are likely to lead to serious flow-on effects for subcontractors, and could result in more business failures.
In the two years prior to the appointment of receivers, TCNZ had substantially expanded and upgraded its fleet of tower and mobile cranes. During the same period, it experienced some difficult trading conditions in the construction sector, including a number of substantial bad debts due to other industry failures….
An Auckland plumber says he’s owed more than $600,000 after the collapse of another construction company. Plumbuilt Plumbing owner…says laws intended to protect subcontractors like him have failed. His anger is directed towards Stanley Group and subsidiary Tallwood, the construction firms contracted by Housing New Zealand to build the development. (The owner) says he lost big at three sites after they went into liquidation. “I would say in excess of $600,000, plus retentions, but we are yet to calculate the final figure,” he says. Newshub understands Stanley Group owes dozens of subcontractors around $6 million in total.
It is part of usual business risk to sell goods or services on credit. Businesses generally run cashflow on monthly cycles and it is very important to your business that you pay your suppliers when they expect to be paid.
In order to achieve this you, of course, need the cash available and this is generally made available by your credit customers paying you. If they don’t this could lead to difficulties including your suppliers putting you on stop supply, or you having to fund the cashflow difference by borrowing. Neither of these options are particularly attractive.
A much easier path, and a cheaper one, is to ensure your customers pay you when expected. However, whilst not expensive to achieve, it does require a certain amount of expertise. And this is where a CreditGuard© credit audit can help.
Your debtors ledger will be professionally audited including: risk assessing your current customers (that is, determining the probability of payment default at a future point), reviewing current security arrangements, reviewing documentation (including terms of trade, application forms and securities), exploring options to reduce payment default risk and ensuring legal and regulatory compliance.
If you want to ensure you get paid on time every month can you really afford NOT to have CreditGuard©?
As a rule of thumb CreditGuard© will cost $15 per ledger customer (plus GST) with a minimum fee of $450. So, for example, if you have 40 customers who you regularly supply to on credit, CreditGuard© will cost only around $600+GST. Please note that this is only a guide, complete the form below to allow us to give a specific quote for your particular circumstances.
Debtcorp is our sister company and specialises in helping businesses maximise on-time payments from customers.
There are a number of elements that need to come together to achieve this and Debtcorp can advise on how you can set up your business processes and documentation to maximise your cash flow.
Click the button below to go to the Debtcorp website for further information.