Cover Story: No Pay, No Profit
By Bob MacKenzie
Like a snowball rolling downhill, the late payment problem that began with moldmakers working for the automotive sector has now grown and spread to other levels and sectors of the plastics-processing ...
Like a snowball rolling downhill, the late payment problem that began with moldmakers working for the automotive sector has now grown and spread to other levels and sectors of the plastics-processing industry. This situation can be brutal on some companies. In the European Union, for example, late payment is said to be the cause of one-fourth of all business insolvencies.
Among Canada’s molders and moldmakers, however, not everyone is adversely affected. For instance, Doug Winter, President of Universal Gravo-Plast Inc. in Scarborough, ON, says if you are really determined not to let yourself be a victim of late payments, you can prevail. Says Winter: “It’s important to be on the money when getting your money.” Winter is both a moldmaker and a molder, but he contracts out approximately 60 percent of his moldmaking, so he sees the situation from both sides. He simply insists on being paid promptly and paying promptly.
Irene Faria, vice-president of Profine Molds Inc. in Mississauga, ON, is leaning with the punch. Says Faria: “It’s fair to say we have adjusted.” Her company designs and manufactures injection molds for the cosmetics, medical, pharmaceutical and packaging sectors. She says it is apparent that everyone is stretching payments these days, but adds that many of her customers were on 60 days net before the current economic downturn began.
Her method of coping is to negotiate. Says Faria: “We have a good working relationship with most of our customers, so the occasional phone call will get us the payment right away. But we are having to do more follow-up these days.”
Negotiating has become all too familiar to Tom Meisels, President of FGL Precision Works Ltd. in Concord, ON. His company designs and builds injection, structural foam, RIM and compression molds, and he has experienced a significant rise in late payments over the past year.
Says Meisels: “We are finding that many large companies in many different sectors are asking for extreme terms, maybe not to the extent of those in the automotive sector, but even the companies that are financially sound are saying ‘if automotive can do it, we can do it as well. Why pay if we don’t have to?'”
He’s also been made aware that while price and delivery are very important to some molders, they will go first to the people who are willing to accept extended payment terms. In some cases, moldmakers are told the terms of payment up front and they are non-negotiable.
Adds Meisels: “Even when the extended terms are not stated up front and you go to collect your money, they’re taking exorbitant amounts of time to pay. Even if they have the money they’re saying ‘nobody pays at 30 days today, why would we?’ So, today if you get it at 60 days you’re happy, but in many cases it goes far longer than that. And a lot of moldmakers have been burned by this; they cannot survive the reduced cash flow.”
Meisels adds that he has found non-negotiable may not mean inflexible. He illustrates with an example: “We were in a situation where we were negotiating with a customer for a $1-million mold. Throughout that period our standard terms were 1/3 with purchase order, 1/3 on delivery and the final 1/3 net 30. The terms had never been questioned. When we got to the 11th hour they said they may have neglected to tell us that they have a corporate policy — that they pay net 60. Fortunately, our business was fairly strong and it wasn’t a do-or-die situation for us, so I told the customer I wish I had known about this earlier but at this point I would have to decline the order. An hour later I got a call back and they asked ‘what can you do?’ We ended up settling on terms that were almost what we wanted and we received the order.”
Meisels says you can either fight the situation or find a strategy to work around it. “You can work with your bank to get a separate line of credit to handle these types of situations. If you are exporting, you should consider the Accounts Receivable Insurance program of the Export Development Canada. But whatever you do, it is preferable to put your energy into coming up with a strategy that lets you take the punch and stay in business.”
Bob MacKenzie is a writer based in Victoria, B.C.