A credit crunch for building companies and contractors in New Zealand has seen more builders being chased by debt collectors. Christchurch’s building debt increased by about 40 per cent from 2014 to last year, and one debt collection agency has tripled its workload. It had increased its staff to handle the extra work, the owner said.
To avoid the debt collection agencies, builders are now taking a hard line on their clients. They no longer have the capacity to endure the slow payments that were being accepted after the Canterbury earthquakes. Together with the greater tax demands from the Inland Revenue Department and a slowdown in the residential rebuild means some builders have drawn a line in the sand, changing their tolerance to their debtors.
Where once 60 to 90 days was being accepted for payment, most businesses could no longer hold out for that long. Many are also taking a harder stance on enforcing payment by the standard 20th of the month, rather than accepting the growing numbers of clients who were putting off payments until the end of the month. In response, some debt collection agencies are recommending their clients ask for payment in 7 to 14 days to avoid risking cash flow problems.
Restructuring specialist, Rhys Cain, said the construction industry and associated trades accounted for most of the liquidations his company was currently dealing with. More than half of his 20 liquidations around the country in the past year were in the building industry.
The next sectors that may attract the interest of debt collectors as they were likely to feel financially squeezed over the coming 12 to 24 months would be hospitality and companies exposed to dairy farming, Cain said.