I can’t pay you until I’ve been paid, is the money mindset that leaves many business owners feeling over-extended and financially strained.
After working alongside business owners for over six years, Mel Curwood, a business support specialist based in the Waikato, finds herself questioning why many business owners continue to provide a large volume of their services before receiving payment.
While they have been successful in understanding the market, identifying customer needs, and creating viable products or services, Curwood believes that they are at risk of failure due to potentially ineffective processes. These processes include how they offer credit to customers, cash flow management, and adapting to changes in the business environment.
The past six years have been challenging for New Zealand business owners, with disruption caused by COVID-19 and the recession. But Curwood is quick to point out that there are more complex issues and challenges on the horizon for some New Zealand businesses regardless of their size.
“COVID-19 created a whole new set of challenges for businesses. With the demand for services increasing, business owners were continuously having to shift their focus, adapt, and pivot,” she explains.
“New regulations and requirements to operate, increasing prices, lack of staff, and supply chain issues – they dealt with it all. The post covid financial boom that many of our businesses experienced means that in comparison – the pressure of this current recession is felt even deeper. The rebuilding period will be ongoing for many more years to come,” said Curwood
A lack of confidence in asking for payment in advance, regular progress payments, or payment upon completion, coupled with the inability to have open and honest conversations about being paid on time, could have an even longer-lasting effect on businesses unless they manage to shift this culture with their clients today.
With a growing buy now, pay later culture in New Zealand, businesses are finding that they are having to be more intentional about setting out roles and responsibilities and expectations with their clients around payment.
The pressure of ‘I can’t pay you until I’ve been paid’ creates a massive bottleneck in cash flow as more and more businesses in New Zealand’s small financial ecosystem are relying on being paid on time so that they can pay their own creditors on time.
Curwood says that heavy diesel and transportation is one example of the hardest hit at the moment.
“I have multiple clients who are struggling with getting paid by their customers. They have customers contacting them requiring urgent repairs but then asking if they can pay their off invoices over time.”
When this happens occasionally, it’s easier for business owners to handle the risk of non-payment. However, when it becomes the norm, managing cash flow can be extremely daunting.
Statistics from EC Credit Control show that the debt load for SMEs year on year in New Zealand is rising. The number of clients loading in the last 12 months is up 27% on the previous year 12 months and the number of debts loaded in the last 12 months is up 31%.
Curwood has noticed that this is a pain point with her clients, with the average value of debts held by the business owners up 12% to around $7k. For many that is fast becoming unsustainable.
“Many business owners I’m speaking with daily have had enough of being treated like a bank. They’re coming to me primarily wanting to figure out how to shift the negative side of the culture of credit that has become so ingrained,” she said.
In her role as a business specialist, in partnership with EC Credit Control, Mel’s job is to work with businesses to make sure that they have the correct and robust processes and tools in place to mitigate the risk of non-payment, such as Terms of Trade, credit checking, and debt collection support. She says it requires a shift in their mindset and being upfront and communicating their expectations around payment.
“It is a Kiwi thing that we don’t like talking about money and have a ‘she’ll be right, I know I will get paid’ attitude. Unfortunately, I am now seeing established businesses suffer significant revenue loss and in some cases closure because they avoided these conversations and didn’t manage their cash flow accordingly.”
Though Mel spends much of her days helping businesses shift their thinking, implement processes, and move towards their financial freedom, Mel is slowly starting to see some industries taking on board new payment tools and making the change themselves.
“Some of my clients in the plumbing industry are now turning to an Escrow service. This gives plumbers peace of mind knowing that money is there in an account waiting to be paid once the job or stages of a job have been completed. This is just one option that helps protect a business’s cash flow and reduce risk.
There is hope that in the future, more businesses will look for ways to secure payments for the work that they do.
“Every business owner must find their voice in this conversation. It’s about giving them the confidence to be open and be upfront about expectations, how credit is provided and the consequences if non-payment is to occur”
Mel Curwood
