Trucking company cash flow is likely to come under increased pressure as big freight customers extend their payment terms. According to the Australian Trucking Association, trucking operators supplying BHP Billiton and other large companies, who plan on pushing out their payment terms must be aware of the effects of these extended terms on their businesses.
Chris Melham, ATA CEO, put out a statement referring to media reports talking about BHP Billiton extending payment terms from 30 days to 60 days, but said the warning applied to any operator faced with a supplier looking to stretch payment terms.
“Trucking operators must assess whether they will have sufficient cash flow to support extended payment terms, not just in the first year but in every year of the contract,” said Melham. “Operators that agree to extended payment terms still need to pay their own creditors on their existing cycles , for example, this could include 21 day payments to fuel suppliers, 30 day payments to small owner-driver subcontractors, and weekly or fortnightly payroll payments.
“Rather than just signing a new contract with extended payment terms, the ATA urges all affected operators to examine their contracts and seek professional advice. At its meeting next week, the ATA Council will consider a plan for the ATA to increase its focus on business-to-business issues in response to growing concerns about the trend towards longer payment times, as well as other problematic terms in trucking industry contracts.”
Concerns over extended payment terms have been raised throughout the year, with the transport companies affected unable to use any leverage with their, often much larger, customers to get relief from the financial pressure.
Some are advocating taking the issue to the Road Safety Remuneration Tribunal and demonstrating how the extension of payment terms puts pressure on safety, as operators get squeezed between non-paying customers and suppliers demanding payment.
The idea of going to the RSRT would be anathema to many in the industry. The Transport Workers Union would regard such a move as a political victory. However, the financial pressures may get even higher for the average operator, forcing them to take desperate measures.