It’s a case of once burned twice shy for suppliers, who have grown tired of losing large sums of money in corporate collapses. Any company that extends credit is bound to cop a bad debt sooner or later, but industry suppliers have been taking far too many hits of late. A consensus appears to have emerged: trading terms have been overly generous and need to be tightened.

The collapse of Geon was the turning point. Suppliers that had previously told ProPrint change was advisable suddenly said it was urgent. The Geon creditors list revealed that more than 200 printing industry creditors could be owed over $11 million in debts. Almost $5.6 million of that came from paper merchants, including $3.1 million for BJ Ball, $1.2 million for KW Doggett, $960,000 for Spicers, $216,000 for Australian Office and $48,000 for Charters Paper.

Large claims were also made by other vendors of consumables and machinery: $710,000 for Heidelberg, $491,000 for Hostmann Steinberg Australia, $283,000 for Fuji Xerox, $255,000 for Currie Group, $130,000 for Express Envelopes, $98,000 for Toyo Ink, $84,000 for Kodak, $75,000 for UPM Raflatac, $64,000 for Visy, $57,000 for Candida Envelopes and $56,000 for Graph-Pak.

Geon was the largest company collapse in Australian printing history. But it was by no means alone in the past six months. There have been other prominent victims, such as BPA Print Group, Complete Print Solutions, Vega Press and Hyde Park Press. Vega cost the three big paper merchants more than $1.5 million: BJ Ball was hit for $787,000, KW Doggett for $413,000 and Spicers for $342,000. Hyde Park took them for another $585,000, with $237,000 owed to KW Doggett, $191,000 to BJ Ball and $157,000 to Spicers.

Knock-on effects

One notable feature of the printing industry is the close links between companies. For example, Complete Print Solutions owed Vega $151,000, while Vega owed BPA Print Group $41,000. Pore through creditors lists and you’ll see certain trade suppliers appearing with alarming regularity. Collapses don’t occur in isolation; when one domino falls, others are likely to tumble. That’s why it’s so important the industry gets it right on credit.

BJ Ball is one company that is determined to get it right. “Extended terms are a thing of the past,” said chief executive Craig Brown. “The current economic environment is showing that some of our customers are stretched. The level of failures is growing and a cautionary approach to credit is essential.

“I think the industry’s approach to credit has been fractured for a long time and in general terms industry suppliers need to put their hand up for this. Historically credit has been extended too easily with little due diligence. The impact has been a rising cost of insuring debt which has, therefore, resulted in a tightening of credit policies,” added Brown.

Heidelberg Australia & New Zealand has also embraced change. The manufacturer tightened its trading terms to “strictly 30 days” as of 1 April. It informed clients by letter that its new “commercially prudent terms” were the result of the “turmoil” and “unprecedented change” that were facing the industry.

Heidelberg’s move was well received by other suppliers, such as KBA. “I applaud what they’ve done. I think credit has a dangerous side it. We’re not banks,” said sheetfed general manager Dave Lewis.

“If it enforces a bit more fiscal responsibility in the industry, why not? It’s difficult enough to make profit in this industry, so you can’t allow people not to pay.”

Lewis said KBA offers 30-day terms, but is willing to be flexible, because “most companies insist on 60 days”. He said KBA always keeps a close eye on its exposure and wouldn’t let payments extend far beyond 60 days. Customers in those situations receive friendly reminders, which usually results in prompt payment, he said. He added that KBA had no more than two or three customers at the 60-day mark when ProPrint called.

KBA isn’t the only local supplier to offer ‘flexible’ 30-day terms – so do Currie Group, Fujifilm, Agfa, Kodak and Manroland.

Curries sales & marketing director Phillip Rennell said the distributor draws an absolute limit at 60 days.

“We would love to have everybody paying inside their trading terms, but the reality is our industry has been more relaxed about it. You try to get everyone to pay on time, but you have some that slip through the gaps,” he said.

“[The credit issue] is incredibly important. What we’ve experienced in the past six months has heightened everybody’s awareness of it… It’s a very good topic of conversation. I’m glad it’s out and is being discussed openly.”

Fujifilm also uses 60 days as a cut-off point, according to national credit manager David Hunt. He said Fujifilm will examine how to get those 60-day customers to pay earlier, but cautions that suppliers need to take a consultative approach to tightening terms so that clients can budget for it. “It has a major impact on their cashflow to overnight have to come up with two months’ payment instead of just one month.”

Transparency is best

Agfa managing director Mark Brindley sits down with his finance staff each month to review accounts. Clients that can’t pay their bills within 30 days are given a grace period, with the more transparent and proactive ones likely to receive more lenient treatment, he said. But the firm never loses sight of the need for speed.

“We’ve been very disciplined in our approach on terms for many, many years,” he said. “It’s all about getting our money as quickly as we can. A sale isn’t a sale until we’ve got the money.”

Kodak works closely with clients that fall outside their trading terms, said Adrian Fleming, recently promoted to Asia Pacific general manager of digital printing. Each case is judged independently based on things like credit worthiness and trading history. Responses can range from working out a payment plan to stopping supply.

“For us, [credit] is hugely important. Any kind of bad debt or exposure can be catastrophic when margins are thinner than they’ve ever been before,” he said. “We haven’t suffered a lot from bad debt in the past couple of years because we’ve kept a tight rein on accounts receivable.”

Manroland Australasia has suffered only $5,000 of bad debt in the past three years, said managing director Steve Dunwell. He gives two reasons for this success. Manroland deals mainly with customers at the top end of the market, which manage their payments well. The manufacturer is also unafraid to cut off clients that don’t settle their debts.

“Some customers extend [30 days], but pay regularly. The flag for us is if payment starts to become erratic. We would probably have about five accounts we keep a close eye on, but the rest are in pretty good shape.” He estimated that Manroland has only had to cut off three clients in the past three years.

No cause for complaint

In the wake of the Geon collapse, those flexible 30-day terms being offered by suppliers might start to become less flexible. If that happens, printers will have no cause for complaint, says the director of Prushka Fast Debt Recovery, Roger Mendelson.

He said suppliers from all industries are looking to tighten their terms – and that most won’t go beyond 30 days.

“For capital items like a press or a major component, in other industries it’s normally cash-on-delivery. If customers are getting 30 days on those items, I think that’s reasonably generous, certainly nothing for people to complain about. For consumables and smaller items where there’s a running account, over 30 days is probably better than most industries.”

Mendelson said that while it might make sense for printing suppliers to rein in credit, it wouldn’t be feasible for them to adopt a cash-on-delivery model.

“If they control the market in their segment, you can almost do what you like. But in a free marketplace, you will lose business and people will look elsewhere, particularly now with customers looking on the internet and buying from overseas. If you put hurdles in the way, you’re going to lose business. You can grant credit, and if you have good systems, you will get paid and won’t lose much money,” he said.

Kirk Cheesman, managing director of National Credit Insurance, also warned suppliers against moving to cash-on-delivery.

“I think that would be extremely difficult. But I don’t think they need to. I think their cashflow would support 30-day terms. When the printing industry became so competitive, they were offering thin margins and extended terms to win business, and typically, you can’t do both.”

Cheesman said suppliers in all industries have relaxed credit terms in the past four or five years in an attempt to hang on to business. The time has now come to “get back to normal pre-GFC conditions”, he said.

“I don’t think in the long term an industry can survive by having such thin margins and a lot of competition and extending terms. The longevity of an industry that continues to extend credit terms is short-lived,” he said.

“The printing industry has consolidated quite a bit, and that should support the ability to try to limit credit. When new players come in, they typically have to offer something different, and credit terms has been something different in the past.”

Could COD work? Credit experts speak

Printers would see most of their medium- and large-sized customers walk away if they’re asked for payment up front, said the managing director of National Credit Insurance, Kirk Cheesman.

“I think it will limit their clientele if they only offer cash terms. The expectation is you will provide credit to your clients,” he said.

It is a point echoed by Prushka Fast Debt Recovery director Roger Mendelson. “You may get small customers, but any commercial customer just doesn’t work that way. You’d find you’d lose a lot of good quality business by doing that.”

Mendelson said printers should instead do credit checks on their clients and ask for director’s guarantees.

However, one printer has not only moved to COD, he has credited it with helping generate record monthly turnover.

Mabuzi owner Kevin Rack said the Sydney garment printer changed policy in 2009, and has heard only two objections since.

“The policy change came about from having to watch one of my poor colleague’s end-of-month dreaded money-collecting phone calls. That’s probably one of the worst jobs in the world,” he said.

Collecting payment up front improves cashflow and means staff don’t have to waste time chasing money, he said.

Background briefing

• When printing companies go to the wall, trade suppliers, especially paper merchants, tend to have the largest unsecured debts, which often run into the millions. There is rarely any money left following a receivership or administration to cover these unsecured debts.

• Insurance companies do extend credit insurance, but every bad debt puts more pressure on this safety net.

• Printing industry suppliers have lost tens of millions of dollars in the past six months with the high-profile collapses of Geon, Vega Press, BPA Print Group, Hyde Park Press and Complete Print Solutions.

• Geon’s creditors list revealed that more than 200 printing industry creditors had lodged claims for $11.4 million of debt, including $3.1 million for BJ Ball, $1.2 million for KW Doggett, $960,000 for Spicers and $710,000 for Heidelberg.

• Suppliers have long said the industry needs to get its act together on credit. The Geon collapse seems to have convinced them to act.

• Heidelberg responded by tightening its trading terms to “strictly 30 days” as of 1 April.

• The local arms of Agfa, Kodak, KBA and Manroland all offer 30-day terms, as does Curries. However, they are generally flexible when it comes to credit and are willing to wait 60 days to get paid.

• Although there seems to be a desire to make those 30-day terms less flexible, suppliers also recognise that tightening terms is best done gradually and in consultation with customers.

• There is some scepticism about suppliers’ ability or determination to stand firm on shorter terms.

• Suppliers in all industries have found it harder to collect payments during the past five years, but they are increasingly insisting on pre-GFC terms.

• Other industries generally don’t allow customers to drift beyond 30 days. One notable exception is the troubled construction sector, which will often allow 60 days.

Social media readers sound off

Credit and cashflow have become hot topics on ProPrint’s LinkedIn group. We have rounded up some of the most pertinent comments.

“It seems to me that one of the biggest issues within this industry is the difference between when a printer gets paid by their customers and when a printer has to pay its suppliers. This issue can be caused by printers providing longer-than-normal terms in order to be competitive and secure the work while times are tough. Competing on work with terms is never good. Not only does this have a significant negative impact on cashflow but it is bad risk management.”

David Hunt, national credit manager, Fujifilm Australia

“I have never had any problem with cashflow. My trading terms are strict – new clients either pay a 25% deposit or pre-pay before we commence work. Casual clients pay COD. Long-standing customers get 30 days. If unpaid on the 31st day, they get a friendly phone call. We don’t undertake any new work for a client if they are in arrears. We have one client who needs to pay 60 days. We put a 10% loading on all their work – with their knowledge – to act as their bank.”

Michael Santer, owner, The Jamida Group

“Paper merchants have been way too lenient and greedy with companies that we all know were not travelling too good. They have relied on insurance to bail them out rather than walk away from dubious clients. We all talk in the print industry and it has been proven time and time and time again that certain companies will fail, but no, paper merchants keep on supplying these companies. And we all know that once the dust settles and the paper merchants lose more money and premiums go up, they conveniently put their prices up so the good guys can fix up their shortfall. The sooner insurance companies walk away the better paper merchants will operate their companies and stop supply to the badly managed print companies.”

Geoff Drennan, managing director, FSG Design & Print

“Kopystop operates on the premise that all orders be paid at collection, just like most purchases in our daily lives, retail or otherwise. As a smaller operation, we cannot sustain carrying bad debtors for 60 to 120 days, although the 30-day terms state 30 days very clearly. We did this in the past for far too many years. Kopystop is not a bank… If we are to maintain the highest standards of quality and service, then we must be recompensed at point of sale, in order to meet our own never-ending payment of bills, which sustain our daily business. Cash flow is critical… So, should the industry stop operating on credit? The answer should be: yes!”

Art Tchetchenian, managing director, Kopystop Digital Print Solutions

“Credit cards are a common thing now. I think every business should have one. And every business should accept them. It would put the onus back onto businesses to use banks as credit providers and not other businesses. B2B credit is an old-fashioned concept and should be eliminated. If someone does not have a credit-worthy ability to get such a card they should not be trading.”

Ted Congdon, managing director, Whites Law Bindery

“As an industry we definitely need to operate with credit. Business-to-business industries like ourselves mostly do. Stricter terms are a better way to do it in these times [rather than COD]. Printers have to be more cautious of who they deal with, in relation to customers and suppliers.”

Tony Perini, general manager, Intoprint

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