An Earthmoving company engaged the services of Slater Byrne to collect debts, which, if left unrecovered, would substantially reduce its cash flow and force it to stop operation of its business. Slater Byrne was asked to collect on 20 accounts in total from this firm for the period August 2014 to January 2019. The report showed a successful debt recovery rate of 77.60% of the $288,754 total value of debts.
Why Earthmoving Companies Have Difficulty Recovering Bad Debts
There are a variety of reasons why earthmoving companies have difficulty chasing after bad debts. Notes from Parliament hearings on terms of payment and contract terms in the mining sector highlighted the following reasons why small and medium-sized business are having difficulty recovering money owed to them by the mining companies:
1. Extended payment terms.
The industry-standard payment term is between 30 and 45 days but submissions received by the Parliament showed that several large mining companies have asked for and are actually extending their payment terms to 90 days or more following the 2007-2008 global financial crisis. The extended payment term has resulted in businesses using their profits to manage their cash flows.
2. Request to reduce profit margins.
During the financial crisis, mining companies have asked their contractors to significantly reduce profit margins. While beneficial to mining companies, this has adversely impacted small to medium businesses who cut the rate of their services or supplies to keep a customer, while still providing the same high-quality of services or equipment.
3. Insolvencies in the construction and mining companies.
Statistics from the Australian Securities and Investments Commission (ASIC) showed that from December 2017 to December 2018, there was a 32.7% change in the number of construction companies that entered external administration. Within the same period, there was a 61.9% change in the number of mining companies that entered external administration. What this means for earthmoving companies is that they are either one of those who entered administration or are facing financial difficulties because their contractors are the ones who are under administration.
Moreover, a CreditWatch report revealed that the construction industry remained the worst industry for court actions and payment for defaults in the third quarter of 2019. Companies across all industries in New South Wales were the worst performing during the same reporting period.
How Did Slater Byrne Help to Recover These Debts
Earthmoving companies face a unique difficulty in recovering their debts because of the volatility of the industries that they are serving. Global Data, in July this year, reported that Australia’s construction industry is facing a troubled period. The mining industry is the pillar of the country’s economy. When the mining industry is in turmoil, it is expected that suppliers are likewise adversely affected.
Several earthmoving companies have approached Slater Byrne over the years to help them recover Earthmoving debts. One of the major burdens these companies face is trying to understand why they are no longer being paid on time. These companies are also burdened with the problem on why, despite being paid on time, they are not paid in full. Hiring Slater Byrne have allowed these companies to focus on what they are good at.
Each unpaid debt arises from a different situation, a different business relationship, and, oftentimes, a different set of terms and conditions. With the credit and dispute resolution expertise of the team at Slater Byrne, an average of 77.60% was recovered from the total unpaid debts. This percentage represented $224,084 of the total book value of $288,754.