Pay your bills: The Spinoff survey of corporate payment times

Imagine you didn’t get paid for a month or two for your work. Big businesses have used this tactic to keep cash in the bank – but how long do our corporates take to pay? Rebecca Stevenson investigates.

In New Zealand, they account for 97% of businesses. In Australia, 97%. In the UK, 96%. Small business is a large part of the business world around the globe. And they’re all plagued by the same problem – waiting to get paid.

Our piece on the issue this year opened the floodgates for small business owners to share their tales of battling to get paid by bigger companies.

And it’s a problem that has impacts beyond the small business involved. An inquiry last year across the ditch found trade between small and big business amounted to $550 billion a year. That’s a huge number, so imagine the ripple effect of this money being paid late, with some corporates introducing 60, 90, or even 120-day terms to pay (from the month of the invoice date).

The inquiry into payment terms for small business found “collectively Australian small businesses are owed around $26 billion in unpaid debts at any one time”. If you’re not getting paid, you’re not earning, and if you’re not earning you can’t pay your bills, employ more staff and you know, do business – and data from the Australian Securities and Investment Commission (ASIC) shows that inadequate cash-flow is the leading reason for business failure in Australia.

Likely sensing it was on the wrong side of the public relations battle, our Tasman friends introduced a voluntary code of conduct for big business, binding them to pay small business suppliers within 30 days of receiving a correct invoice.

A Green senator, Nick McKim, is introducing legislation in Australia this year which would make 30-day payment a legal requirement, with financial penalties for companies that break the law.

In the UK, the issue has seen legislation passed which make reporting payment times from big business a requirement (as part of a prompt payment code) with that data now being used to compile a list of the worst payers for the first time early this year. The idea is consumers can choose which corporations to support based on how they treat their suppliers, and of course there is a healthy dash of public shaming in the mix.

But a code is not a panacea. Collapsed UK construction company Carillion was a long-time signatory to the UK’s Prompt Payment Code, but also a notorious late payer. Because it’s not only the terms that are an issue – large companies can also fail to meet those terms. Research from credit reporting agency illion (formerly Dun and Bradstreet) says “New Zealand’s largest companies remain head and shoulders above the rest, with an average payment time more than two days longer than the next category at 9.9 days” late. Wholesaling and manufacturing industries had some of the lowest proportions of invoices paid promptly and some of the highest late-payment times, the company says.

Xero found about 30% of small business invoices were paid late. Photo: Getty Images

Cloud accounting firm Xero‘s data from some of its New Zealand small business customers shows from January 2015 to September 2017 30% of invoices were paid more than 7 days late. This equates to an average of $3,000 overdue per month per small business. “If we look to extrapolate the overall impact for all small businesses in New Zealand (based on 515,046 Stats NZ count) from this monthly average, this clearly becomes a big issue for the economy with around $1 billion overdue monthly (for invoices more than 7 days late),” Xero New Zealand manager Craig Hudson says.

It’s accepted payment terms are an issue in New Zealand, and new minister for small business Stuart Nash is understood to be studying the background with interest. In an interview earlier this year he reiterated the importance of small business. “They are the backbone of the economy. They amount to around 500,000 companies, which represents 97% of New Zealand businesses. They employ around 40% of the workforce and contribute 28% of GDP.”

And they need to get paid.

Some heavyweights are getting behind the issue including the Road Transport Forum (RTF), which represents the commercial road freight industry. Why are truckies so fired up about it? RTF head Ken Shirley says dairy giant Fonterra and meat processors are using their size and dominance to bully freight companies into accepting delayed payment terms. And it’s not as simple as just finding another contract, he says, as these corporates are so large and so influential that in some parts of New Zealand they are the only game in town.

As the Aussies found: Given the imbalance of power in the relationship between large and small business, rather than complain about late payments or adverse payment terms – and in doing so, put the business relationship at risk – small businesses often resort to other sources of funding to cover their cash-flow shortfalls while waiting to be paid.

In New Zealand, we’re already getting some benefit from the changes offshore. Up until last year, Australiasian brewer Lion Nathan had standard trading terms of 62 days (from the end of the month in which the invoice was issued). This practically meant some suppliers could be waiting up to 90 days to be paid, the company says.

Beer maker Lion Nathan has moved to 30-day payments. Photo: Lion Nathan

But as of 1 January 2018, its standard terms have changed to payment no later than 30 days from receipt of an invoice. “One of our key values is ‘Doing the right thing for the long-term’. We didn’t think that making some of our smallest and most vulnerable suppliers wait over three months to get paid for their work was doing the right thing. And it’s not a sustainable business model – if our tardiness in paying for work means the difference between a business being able to survive or not, then us taking 90-plus days to pay is definitely not thinking about the long-term,” Lion Nathan’s external relations manager Genevieve O’Halloran says. It would like to see a similar code introduced in New Zealand.

Business New Zealand’s Kirk Hope says a voluntary code would make some sense and businesses need to support each other, but he says the terms have to suit both parties. He sees parallels in the business world between the rise in the use of Afterpay, the electronic layby whereby you get goods up front and then pay in four instalments. Allowing businesses to pay like this would keep the money flowing, Hope says.

The RTF’s Ken Shirley, though, has spotted another option. His group has commissioned a report into how the Fair Trading Act could be amended to take in business-to-business contracts. Basically, the law could be extended so business contracts had to have fair payment terms, removing the ability to introduce “unilateral payment deferment”, much like how the act stops businesses offering and enforcing unfair contracts for consumers.

Technology and data sharing may also help, with the government introducing a New Zealand Business Number to help smooth the way. NZBN director Joanne Hogan says (again, we’re learning from the Aussies) Australian research has shown one in three invoices have data quality issues or end in disputes, and one in five invoices go to the wrong recipient. In both cases, this impacts the payment cycle and therefore the cash flow of a business, and Hogan says these figures are likely to be similar in New Zealand.

By creating a shared network of core business information that organisations are most often asked to share when doing business – such as their trading name, postal address  and email address – the NZBN will save businesses time and money as it will resolve some of the issues, she says.

Fletcher takes 60-days to pay. Photo: Dave Rowland/Getty Images

So how are our big corporates at paying?

We contacted about 20 companies in New Zealand to ask them what their payment terms are, starting with a list of the NZX’s 20 largest businesses (by market capitalisation).

We had to discard a few due to them not actually operating or paying suppliers – like the Australian Foundation Investment Company – and a number refused to respond. Guilty much? Among those who refused to say how long they take to pay their suppliers were Contact Energy (whose communications advisor launched into a spirited defence of Fonterra’s dragged-out payment times) and good old Fletcher Building (though we found their terms online anyway). We included Xero as it was still listed on the NZX when we started collating the list. It says “we firmly believe in paying suppliers on time and are always striving to do more to tackle the cash flow gap”. We also added Kiwibank, partner of the Spinoff business section, in the interest of transparency.

Most of the companies surveyed paid invoices on the 20th of the month (The Spinoff is in this category). Practically, this can mean invoices are not paid for up to 50 days – for example if an invoice is dated 1st of a month, it won’t be paid until the 20th of the month following.

Z Energy is adopting a flexible approach. Its current practice is to accept any reasonable payment terms of the supplier. “So, for example, if a supplier asked to be paid a week after invoice then we will do that or if they ask to be paid three days after they invoice then Z would do that,” spokesperson Georgina Ball says. “We have these super flexible and prompt payment terms because we really value our relationships with suppliers and treat them as partners.”

The slowest payer was Fletcher, at 60 days from the end of the month that an invoice was received (again, add another 30 days for the invoice month, making a payment term of up to 90 days.)

A couple didn’t respond at all, including the normally-publicity happy Air New Zealand and Fisher & Paykel. A2 Milk says it “has a limited number of direct suppliers in New Zealand. All are paid according to agreed terms, which are confidential, and these differ on an individual basis”.

Here’s the rest, ranked from shortest to longest:

Port of Tauranga 14 days following date of invoice

ANZ within 30 days of invoice date

Z Energy 20th of the month following invoice date

Xero 20th of the month following invoice date

Spark 20th of the month following invoice date

Ryman Healthcare 20th of the month following invoice date

AMP 20th of the month following invoice date

Meridian Energy 20th of the month following invoice date

Mercury Energy 20th of the month following invoice date

Kiwibank 20th of the month following invoice date

Vector 20th of the month following invoice date

Vodafone 45 days (from receipt of invoice)

Westpac 45 days (from receipt of invoice)

Fletcher Building 60 days (from the end of the month in which the purchaser received a correctly tendered invoice)

Contact Energy, Air New Zealand, Fisher & Paykel, Ebos, A2 Milk refused to specify or did not respond

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