24.4.15 – Australia’s slowest paying industries revealed
These are the industries making Australian businesses wait the longest for invoice payments.
- Labour hire
- Mining services
- Commercial property services
Below we investigate why the big players in each sector prefer longer terms and what you can do to stop 60-day invoices from hurting your cash flow.
Last year’s Dun & Bradstreet Trade Payments Analysis report showed mining companies used the longest payment terms, with contractors waiting an average of 56 days for payment.
The Invoice Market CEO Angus Sedgwick said shorter invoice terms were difficult to negotiate to with the big miners.
“Mining services might be a husband and wife truck driving business and all they do is deliver for one mine,” he said.
“The mining company will likely say that their terms of trade override your terms of trade. If you are a small supplier and you want to do business with a massive company then you have no choice – either deal with their 60-day terms of trade or don’t deal with them at all.”
Contract Labour Hire
The labour-hire industry is fast-paced and competitive. So it’s vital that you are able to manage your cash flow as efficiently as possible.
Companies have no choice but to pay their contractors every week, regardless of what terms their clients use.
Let’s say one project involves 20 labour hire staff each receiving $650 per week for working as factory cleaners. The labour hire company then on-charges those wages to their client at $765 per week.
But the factory may not pay that invoice for another 60 days.
That means the business requires working capital of more than $100,000 to meet the contractor expenses.
Of course, eventually the factory will pay. But in the meantime, the labour hire company has to fund operational expenses such as salaries, rent, and payroll tax.
If you provide contractor placements, invoice financing can help ensure staff are always paid on time.
Construction and trade contractors
Construction contractors are often impeded by cash flow delays, but there are a limited number finance providers willing to help.
“Let’s say a builder is contracted by the developer to construct a six-story apartment block,” Mr Sedgwick said.
“The builder will then come in and sub-contract as range of trade businesses such as electricians, painters, plumbers and carpenters to complete a range of different services.
“Because the construction industry generally relies on banks to release funding as stages of the project are ticked off by the quantity surveyor, sub-contractors can often go months without being paid, as even once a progress invoice is approved for payment, the terms of trade are likely to be 30 to 45 days.
“Using invoice financing gives construction companies access to the funds tied up in verified invoices.”
Commercial Property Services
Invoice financing solutions are popular with contract cleaning companies that don’t want to rely on overdrafts and want access to funds generated by invoices immediately.
“This might be a cleaning service contracted to work in a 60-story office block.” Mr Sedgwick said.
“Their frequent expenses such as cleaning equipment and wages all have to be met in order to keep their business running.
“But they will issue an invoice to the owner of the building or the body corporate and those payment terms will probably be 30 days from the end of that month.
“It’s the same every time. You have to spend money up front in order to earn money. But you won’t see that profit for up to 60 days in many cases.”
The key cause of ongoing cash flow issues for the manufacturing industry rests with the inevitable ‘cost/payment lag’ – the time between when the costs associated with manufacturing a product are incurred and when payment from customers is received.
The net result of this ‘cost/payment lag’ is a large proportion of a manufacturer’s working capital being tied up in materials, stock and debtors, often leaving an inadequate sum of working capital to pursue growth opportunities.