Canterbury’s “bloody problem”. No, not a major car crash, or the Crusaders reflection on their Super Rugby campaign, rather a reference to the massive growth in the number of liquidations of building firms in Canterbury.
In the Stuff.co.nz article (August 29 ) reference is made to the 160 odd building companies that have failed since Jan 2015 – 60 of these in the current calendar year alone. Leaving creditors more than $40M out of pocket, there is no sign of the avalanche abating. Sure, there are a lot more building companies out there now, in the wake of the biggest building boom NZ – and particularly Canterbury and Auckland – has probably ever seen, however the number of building firm liquidations ( EY liquidator), Rhys Cain, was dealing with were “ running at a higher percentage than usual.”
Nevertheless this doesn’t take away from the fact that more than forty million dollars has been lost to (mainly) suppliers and sub-contractors as a result, and there is inevitably more pain to come. Logically, the Auckland market will be next to feel the growing pains associated with rapid growth in the building sector, and while most people believe the building game is the only game in town to be in, many suppliers, contractors and subbies will find in due course that such blind faith will result in tears unless precautions are taken.
Cain – who spoke at a recent CreditWorks Christchurch function on the issue – referred to the numerous explanations as to why Canterbury companies had failed..
“ The most common difficulty they are showing is poor cash flow management, very tight margins, lack of experience in managing a business, and difficulties in obtaining and retaining quality staff.” While some thought Christchurch’s post-quake building boom meant that by just turning up, you’d be rolling in gold he states ”it’s not quite like that. You’ve got to have a good business brain.”
My initial observation is that these explanations are nothing new, and will continue to plague the industry, unless more attention is paid to the signs, and the symptoms are recognised at an early stage. Time and again in previous articles, I have referred to the need for suppliers, contractors and others to maintain vigils on the credit behaviour of their clients – not just “qualifying” them at the outset when initial supplies of product and services are being contemplated, but during the course of the relationship. Things change. Peoples credit behaviour changes – because of all the reasons outlined above – so you need to be one of the first to know when this occurs, and be ready to get to the negotiating table with the client before total failure occurs. Once the liquidators step in, the likelihood of you getting payment reduces to almost zero.
Clearly, the best indicator you can have on a business’s viability and stability, is whether or not they are paying their bills on time. Not just to you – as often they will look after one supplier over another, depending on future needs – but on how others in the market place are getting paid. With over 320 major NZ companies supplying us with current debtor data – often provided on a daily basis – and representing over $1.7billion of aged debt exposure, the CreditWorks database -CRISworks- provides the most comprehensive and transparent view in NZ, of how these commercial enterprises are performing, and the odds on their future prosperity or survival.
Without wanting to keep beating the same drum, until suppliers of goods or services are prepared to oversee, and take cognisance of payment profiles, and be prepared to address irregularities in credit behaviour before they get out of hand, I see little likelihood of a trend reversal in the escalating number of liquidations and debt losses prevailing in the industry.
The credit industry is full of clichés and, in parting, a couple spring to mind as being very pertinent in these situations ;
Knowledge is Power
Today’s loss is the smallest.