Two of New Zealand’s largest corporates effectively pushed their terms of payment out to 90 days last year.
As price-takers rather than price-setters, transport operators and many small businesses found themselves with little choice other than to accept the new terms and had to find other ways of covering their expenditure.
Deferring payment is not illegal and in a perfect market environment the issue would be addressed as part of healthy commercial contract negotiations.
Prime Minister Bill English described it as such when responding to a question on the issue during his time as Minister of Finance.
“Well, it would be unacceptable if it was outside the current legislative requirements,” English said.
“In the end, these are freely transacting people doing business. Any party to the transaction is able to choose whether the terms are suitable for them or not.”
English is correct in theory but because of the inconsistency of competition across the economy there is a power imbalance working against transport operators and other small suppliers, particularly those who serve the primary sector.
That sector is dominated by a few big corporates which operate as virtual monopolies and, in one case, we even have one of these monopolies created and protected by statute.
While those companies might serve NZ Inc well in the global marketplace, their dominance prevents healthy competitive behaviour here at home.
Consequently, there exists very little market protection from payment deferral as it applies to our industry. The Road Transport Forum (RTF) has undertaken to address the problem on behalf of the industry.
Working with road transport legal expert Ed Cox of Gibson Sheat Lawyers, our plan is to develop a legislative proposal based around the unfair contract term provisions that already exist in the Fair Trading Act.
Those provisions currently relate to unfair contract terms in a standard form consumer contract, but Cox’s advice is that it would not be a big change for those protections to apply to business contracts also.
Once the proposal has been finalised we will begin the process of lobbying government officials and political parties to gain support for the necessary statutory changes.
It is worth noting that late payment is not just an issue in New Zealand. Australian Small Business and Family Enterprise Ombudsman Kate Carnell is in the middle of an enquiry into payment times and practices over there.
Her enquiry is also looking at the impact long payment times have on small businesses and the potential regulatory and market-based responses available to protect them.
She has already put a stake in the ground over the issue. In a recent meeting with small businesses she announced the enquiry’s work so far had shown that almost 50% of small businesses in Australia experienced late payments on at least half of the bills owed.
“Ninety percent of small businesses go broke because of cash flow and for a large number of these it is because of slow payment,” Carnell says.
“It is not because these big businesses can’t pay, it is because they chose not to. They are using small business as interest-free banks.”
Carnell suggests it is the cynical nature of large corporates using late payment terms to artificially benefit their own balance sheets that is most infuriating to small suppliers and transport operators. Her enquiry has found some large companies have moved payment terms to as long as 120 days.
Australian Trucking Association (ATA) chairwoman Noelene Watson says most of the costs incurred by small trucking businesses must be met before they can bill their customers.
“This includes wages or personal living costs, fuel, tyres, finance costs, registration and maintenance. As a result, small trucking businesses are vulnerable to adverse changes in their payment terms, such as large customers imposing extended periods before they will pay an invoice.”
Meanwhile, Carnell’s enquiry is having a positive effect even before its findings are released. Aussie supermarket giant Coles has announced that from July its small suppliers will be paid within 14 days, down from the 30-day average they currently work to.
RTF totally supports the work being done in Australia and will keep a close eye on its progress. A positive outcome over there will help add momentum to our cause here.
Until then we encourage operators to establish standard terms and conditions that, where possible, maximise the chance of the operator’s terms being the default contract position between it and its customer.
