Sep 28, 2017

The tail tries wagging the dog

The tail tries wagging the dog

The mines supply chain is taking a stand against what is says are unreasonable payment terms.

Seven regional Queensland industry groups and economic development bodies have requested major mining houses review their processes.

In letters sent to the heads of five major mining houses operating in regional Queensland, the group outlined the significant negative impact the current 60 day payment terms has on the local supply chain.

With positive financial results being reported, the group requested mining houses revert back to more acceptable payment terms of 30 days to enable a sustainable business environment, said Gladstone Engineering Alliance CEO Carli Homann.

Gladstone Engineering Alliance, Resource Industry Network, Central Highlands Development Corporation, Toowoomba and Surat Basin Enterprise, Greater Whitsunday Alliance, Townsville Enterprise Limited and Capricorn Enterprise have been working together for a number of months and recently surveyed regional businesses on the matter.

The survey found that more than 70 per cent of respondents were having trouble growing their business and delivering goods and services on account of the extended payment terms, said Mrs Hormann.

Almost half of respondents have had to source alternate bridging finance to mitigate the impact of the extended trading terms and almost three quarters of respondents nominated that the extended trading terms have had a material impact on their organisation’s ability to deliver goods and services in some way, she said.

“Many have been unable to pass on the extended trading terms and continue to pay their staff in 7 days and their creditors in 30 days.”

“These businesses are now unable to allocate capital to research and development (which has been the mantra of mining houses) during the downturn to deliver more efficient goods and services to the mining houses. Similarly many businesses have had to cut back on staff training, maintenance and growth initiatives, all of which ultimately impact their ability to service and supply the mining sector.

“The small to medium businesses are the back bone to our economy and the regional supply chain has always and continues to work diligently to provide the innovative solutions to assist mining houses achieve successful cost-effective, productive outcomes with quality equipment and professional contractors. It is widely acknowledged that without these businesses the mining sector would be significantly impacted.

“Ultimately if the extended 60 day payment terms persist there will be fewer suppliers in the market, meaning higher prices, less competition, reduced capacity and the burden of R&D will fall entirely back to the mining houses.”

She recognised Rio Tinto reduced their payment terms from July 1, 2017 for small to medium sized businesses from 90 days to 30 days to help improve SME’s cash flow, but said other mining houses needed to follow suit, Mrs Hormann said.

 

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