Building Suppliers In Trading Pickle
The Age
Monday November 5, 2001
The viability of timber merchants and other businesses supplying the building industry is under threat from credit pressure and the GST, according to the Timber Merchants Association.
The association's executive director, Richard Brooks, says merchants are struggling to strike a balance between builders who are drawing out credit payments, and the stricter trading terms of their own suppliers.
``If you look at the merchant in the middle, he's being stretched at one end by the builder trying to drag his credit terms out, and at the same time by the supplier pulling the credit terms back ... so the pressure is coming at both ends," he said.
Mr Brooks said the GST added to the problem, as merchants often had to pay the tax on quarterly sales before having collected all the money owed to them. ``In some cases it's created a situation where their viability has been affected. It's put acute strain on their liquidity," he said.
The Timber Merchants Association late last month launched the National Home and Building Supplies Association to address issues facing those in the industry, and concerns about credit and the GST are at the top of the agenda.
But Housing Industry Association executive director John Gaffney said he was not aware of the problem, and that he had actually noticed building suppliers were decreasing credit from 45 to 60-day terms, to strict 30-day payment schedules.
Timber merchant Barrie O'Shea started in the industry in 1974, and has owned his own business - O'Shea's Timber and Hardware in Seaford - since 1989. He says there has been a cultural change in the way the industry operates.
``When I first started ... a lot of the old builders considered it a point of honor to pay on time," he said.
``(But now) the smaller guys are all under increasing cash flow pressure. They're obviously a lot more afraid of the tax man than they are of me, so they're more inclined to pay their GST and if they have to, they string people like me out."
Mr O'Shea said cash flow used to be ``a heck of a lot easier", because merchants did not have the difficulty of pay-as-you-go tax and the GST. ``We're paying the GST on sales that we have not been paid for," he said. ``There's that sort of two-way squeeze in the money that I need to pay out, and the money that I can get in."
Banks, which are now lending more money for new housing, have also clamped down on progress payments to builders, leading to delays in money reaching the builders and therefore the merchants, he said.
But Mr O'Shea says it is more than just a GST or bank-related issue. ``The whole building industry really needs to rethink how it funds itself. As I often say, if you take your car in for a service, they don't give you the keys back until you've paid for it," he said.
``If there's no change ... something's got to give. And it will be a case of the weaker people within the industry who will fail."
© 2001 The Age
