Bouncing along bottom

30-08-2010 | Richard Rennie

While there might be some encouraging economic signs no one is throwing money around and everyone is cautious.

A stable dairy payout forecast has been welcomed as much by the rural service sector as by its farmer clients as the sector grapples with slower payments and fallout from some large dairy failures.

"While we have not really had any clients go under as a result of the downturn we have noticed bills are taking longer to be paid," accountancy firm BDO Rotorua business advisory partner Stephen Graham said.

He believes the fallout from the failure of the Crafar empire was most strongly felt through the central North Island and banks were nervous over the status of recently converted properties.

"In one case when we complete the GST return for a large dairy client that return and associated cashflow reports not only get emailed to the client, they go to the bank for their viewing too."

He has banks "screaming out" for farm accounts only a matter of weeks after the closing balance date, something he had never experienced before.

Graham's observations are supported by latest figures from trade credit monitor Dun and Bradstreet.

Accounts receivable data reveals business to business bill payment is now taking on average two days longer than in the first quarter of this year, averaging 48.6 days to pay.

But despite tighter times agriculture was second only to mining in being quickest to pay, averaging 41.8 days, but still 1.5 days longer than the previous quarter.

The Rotorua region had also felt the impact of drought for the past two years, cutting the lactation season short under a lowered payout expectation.

As a service provider himself Graham has faced the dilemma of knowing that accounts prepared now may not be paid till the New Year.

"But holding back services does nothing for your relationship with clients and generally they will all pay - 99% of them are good, honest business people."

Pressure was heightened through the region by the large number of forestry conversions carried out in past years.

"Land that may have looked profitable on the modelled higher payouts would be if those prices had stayed and the fertiliser it requires was applied.

"Fertiliser price hikes, followed by a commodity slide and drought have really meant farmers could not afford what the land needed."

He has clients in the region eligible for Family Assistance claims as a result of two seasons' poor income.

Graham is advising firms that might not have traditionally sourced business from the rural sector to look hard at their terms of trade and to consider registering goods on the Personal Property Security Register if they have concerns over the likelihood of payment.

"It can be a difficult one, though, if you are supplying feed or supplement which gets consumed."

Morgan Swap of J Swap Stock Feeds said this winter had shaped up better than last with more money around.

"However, there is a sense there things are bouncing along the bottom instead of declining further, rather than heading up fast."

Swap had issues last year with clients walking out on contracts for palm kernel but greater price stability this year had seen that largely avoided.

He said larger firms appeared to be riding out this winter better than last year while smaller ones were suffering now.

"It could be we got bashed around last year and were forced to become more efficient and larger firms can afford to have someone collecting and managing accounts.

"This is the sort of job that can get put off in smaller firms and the bills go uncollected."

His views are supported by a recent Massey University survey on small to medium enterprises (SMEs) indicating this year to be the toughest for smaller businesses since the financial crisis.

The Managing under Recession report found SMEs had run out of fallback options like house refinancing and family loans to keep their businesses afloat. Such businesses account for 95% of New Zealand firms.

Swap said his company had spent a lot of time getting farmer clients to take product they had signed to uplift.

However, this year more buyers are going "short" on orders, holding back until necessary, which can be risky given shipments required orders before commencing.

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