If the Geon collapse taught us anything, it is the importance of good supplier relationships. Geon’s demise can be blamed on many missteps – mismanagement, a misfortunate debt structure and the miserable market. But the company’s ultimate end was facilitated by suppliers.
With private equity firms KKR and Allegro emerging as the likely new owners of Geon, cries of ‘phoenix’ spread like wildfire through the industry and suppliers boycotted the new entity.
But it wasn’t just the questionable takeover structure or the alleged plan to wipe the debt that led suppliers to take a stand. Geon had a poor history as a late payer and difficult customer. It is thought the suppliers decided enough was enough.
Scott Siganto, owner of Gold Coast-based trade printer IBS Cards, puts it bluntly: “The way the industry stood firm against Geon is a step forward for the industry. All the poor buggers out there who had been competing with these clowns on price and paying their bills and these blokes expected not to pay their bills and start up again the next day. How does that serve the industry? As far as I’m concerned, they deserved to go down.”
ProPrint was contacted by a former Geon manager, who had an intimate understanding of the way the group dealt with suppliers and said that the slow-paying strategy was driven right from the top. “They were just militant in not paying them on time.”
Paper merchants were allegedly paid in 90 days, other suppliers in 120. Management was “very determined on holding as much cash as possible and making the supplier wait as long as possible”.
Trade suppliers, such as large-format printers, “were given really tight deadlines to work on and then not paid on time”.
However, the same did not cut both ways. ProPrint is told that Geon expected to be paid in 30 to 60 days. “If a customer didn’t pay their bill on time, they wouldn’t process any more work for them, bang, straight away. It was quite embarrassing when they would do that to the customer,” said the source. This extended all the way to government departments, with at least one New South Wales public sector agency cut off because it didn’t pay on time.
Geon’s monumental collapse could have been avoided “if they had treated the suppliers fairly and they trusted them… but they didn’t trust them any more. There was no trust. This is what the people at KKR didn’t do their homework on.”
Strained relationships
The Geon disaster taught us one thing: in a tough market, full of slow and non-payers, supplier relationships are more vulnerable than ever. Printers and suppliers need to manage them carefully. Credit exposure is front of mind for many.
Karen Goldsmith, executive director of the Graphic Arts Services Association of Australia (GAMAA), which represents suppliers, says it’s something the industry needs to address. “While GAMAA recognises there are credit issues in the marketplace, each individual business has its own credit guidelines.
“It’s been reported that paper suppliers are looking at credit issues, and other suppliers have made public statements to this end. However, it is not GAMAA’s charter to make comment on individual company practices. Having said that, when you consider the financial position of the industry, the fact that banks don’t look favourably at investments in the sector and the rising cost of credit insurance, it is obvious that any measures taken need to be considered in light of what is best for the industry as a whole in terms of creating a sustainable environment. Reining in credit practices on both the supplier and producer sides of the industry seems an obvious measure.”
With the large number of printers going under, everyone is expecting suppliers to tighten up their credit terms.
Richard Timson, managing director at Heidelberg Australia & New Zealand, says it is inevitable. “Due to small profits, this is the only way suppliers can remain sustainable businesses.”
Non-payments or slow payments put a lot of stress on the relationship. “This has to be managed delicately as the customer can risk a cut-off of supply. Generally this is the customer’s issue, as they delay for various reasons, including waiting to get paid from their customers. It can only be managed by discussion,” says Timson.
Line in the sand
Rodney Frost, managing director of trade supplier Cheque-Mates, says his company has had to toughen up its credit policy. “Our terms are still the same but we have tightened our policy as far as when we put people on hold. Previously we may have let people go for a week or two and had a chat. Now we just draw a line in the sand and say until this particular account is paid we can’t deliver any further.”
Frost says these slow or reluctant payers have to be managed. “That gets very tough because you also want to maintain a relationship. You don’t want to be too harsh about things but the realities of life are you have to do your job to protect people here and also protect your other channel partners. I’m sure if you went through the list of the 40 that have gone under throughout the past few years, there would be a different reason for every one of them. It becomes very tough. It depends how late [the debt] is and what the amount is.
“If it’s $200 and it’s three days late, it doesn’t rock the boat but when there are larger amounts and they are out a month or six weeks, the most important thing for me is that people communicate and they deliver a payment plan. Then we are happy to work with them. Overall the vast majority are very good. If they have problems, they fill us in. If they have a payment plan in place, we’ll work with them.
“It’s when someone says, ‘I’ll give you X amount on Y date’, and on Y date you call them and they don’t call you back the next day or the day after, that’s when you start to ask questions,” says Frost.
Kodak managing director Adrian Fleming says suppliers need to work with recalcitrant payers. He expects suppliers will be tightening up their terms. “We have always worked on a reasonably strict credit policy. We have the occasional client who gets out of terms but invariably our credit team and their debtor team will work together to formulate a plan to get back on track and in every case I can think of, that’s worked.
“I would imagine people would be much more inclined to stick to their credit terms. Without seeing the books of the suppliers, I would be willing to bet that with some of the bigger collapses, chances are they were well out of terms.”
And when a client falls outside their terms, Kodak has to manage it.
“Sometimes we have people who genuinely forget to pay and typically you can make a phone call and they get on with it,” Fleming says.
“Everyone has habitual late payers. It doesn’t cause a huge amount of stress but it does require extra work to make sure that it’s on track. You always bank on people paying their bills when they say they’re going to pay but we have a strong credit team and when terms aren’t met we are on the phone pretty quickly to them to find out what’s going on and why bills haven’t been paid.”
So what happens with printers working well outside the terms? Doesn’t that cause stress? Fleming says: “We will usually start out with a conversation to understand why they’re over terms and what’s being done to rectify it. We don’t like to stop supply but unfortunately in some occasions we do have to stop supply until people bring their debt back into terms. On the very rare occasion, we will issue notices to people saying your debt is unserviced.”
He says one way Kodak addresses the problem is having contract prices where printers receive a discount if they pay within a set timeframe.
“We have the odd account where we have settlement discount in place,” he says. “If people pay their bills on time, they will get a certain percentage off the total bill. Unfortunately we have some people who never take it up.”
Who’s to blame?
The onus is just as much on the supplier to manage the relationship. Peter Martin, owner of Lotsa Printing in Port Douglas, says Geon’s suppliers should’ve seen what was coming. “The Geon situation is an absolute classic. They were well known in the industry for at least 18 months or two years to be very slow paying their bills.
“If someone was supplying them with $500,000 worth of product a month, they should have been in there demanding the financials and making an assessment themselves as to the strength of that business as an going concern.”
Unfortunately, few were doing it, something he puts down to suppliers on thin margins being totally sales driven. They just wanted to get the money in and were prepared to overlook slow payments.
He would welcome suppliers tightening up their terms because it would weed out the printers who shouldn’t be in business.
“I hope they do because if long term, a business is not paying their bills as they fall due, they are obviously struggling and that in turn causes desperation in the marketplace with silly prices to get work through the door. I think it’s better for the industry that suppliers do get tough and those that are marginal exit. It’s tough love but let’s face it – it’s a jungle and those who are the fittest survive,” he says.
IBS Cards’ Siganto has very much the same view: it’s a supplier’s responsibility to manage bad payers.
“I don’t think you run any small business without having debts; it’s just a matter of minimising it. With the paper merchants, I could never understand why they gave credit. They are working on such small margins. You can’t go and repossess it. It’s the same with printing companies. Why do they offer credit?
“It doesn’t get to a million dollar bill overnight, it take months and months.”
Many in the industry felt the rebadged private-equity Geon would have been something approaching a phoenix, and Siganto says suppliers should be wary of phoenix operations. He says dealing with phoenixes sends out a bad signal to customers and the market. People would be upset about it.
Trading insolvent
Michael Santer, managing director of Sydney-based Jamida Group, concurs. It is just as much as the supplier’s responsibility as it is the printer’s.
“The printer should never be in the situation where they are unable to pay their bills,” Santer says. “It’s illegal to trade if you are not able to pay your accounts when they’re due. That is against the law. Yet may companies do it.
“They rely on turnover to continue to fund their debt. ‘I’ll discount this job now because it will get more money coming in so I can pay off all that money I owed beforehand’ – without thinking how they will pay for the paper and consumables they have used to do the job.
“It’s like a dog chasing its tail. It gets worse and worse and worse and if they can’t keep up the throughput on their equipment because they have huge leases for their presses, they will get into a tighter situation. They will discount more trying to keep the money coming through the company. So that is the printers’ fault,” says Santer.
“From the supplier’s point of view, I believe the supplier should offer terms to a client when that customer has shown their ability to pay on a regular basis. If those terms aren’t maintained, then supply should immediately be cut off; if the supplier doesn’t cut off supply when they’re out to 60 or 90 days, more fool the supplier.”
Santer wants to see payment terms tightened up because the entire industry suffers when there are late payers or phoenix operations.
“Quite frankly, it doesn’t matter if it’s a small supplier or a large supplier. If they get left holding the bag for hundreds of thousands of dollars – or in some cases, millions of dollars – by companies that go under and suddenly resurrect under a different name or management, the cost of business for those suppliers goes up. If their cost of business goes up, that has to be reflected in higher charges to customers so printers will pay more.”
One supplier’s strategy
So how should suppliers deal with bad payers? Ricoh offers one model. Kathy Wilson, general manager of business solutions and production at Ricoh, says the key is communication and working together to sort out some sort of payment plan.
“If they are having problems or if they think they are going to spiral a bit in problems that are on the horizon, the worst thing that can happen is to not declare it and discuss it and, therefore, stop the opportunity of supporting them to work through it,” Wilson says.
“We try very hard to figure out something that works for both sides and sometimes if you take that little bit of pressure off the business, it allows them to take steps to get themselves sorted out.
“If people are open and declare their situation and ask for help, you can head off these things potentially, as long as there is not a fundamental mismanagement within their business.”
Ricoh assesses every potential client to make sure they can pay.
“Our finance arm will look at that business and look at the health of the business and make an assessment on whether they believe the company has the ability to repay the debt. Ricoh as a company will look at that organisation and see whether they have the ability to pay their service contract or their consumables. That is running our business responsibly.
“If we assess that business and we don’t think that business is capable of sustaining that debt or their ongoing requirement for cash flow, then we won’t do business with them. It would be irresponsible for them and for us.”
When customers have difficulty paying, the relationship is managed.
“In some cases, those customers have either declared their situation or we have discovered their situation and we have worked with them on trying to establish payment plans to try and help them trade their way through their difficulties.
“That doesn’t always work. Sometimes, sadly, you find yourself in a situation with someone who just doesn’t have a viable business. No payment plan in the world will resolve fundamental business management problems. If you have bad cash flow or bad debt management, no payment plan will help. We have had customers default on debt and sadly that is the reality. You don’t get it right every time.
“There have been situations where I personally have gone to visit the customer along with our finance people or with our service depending on what the issue is and we’ve had multiple meetings to try to work out things and try to problem solve their situation and try and come up with a plan to get things on track and facilitate an outcome that works for everyone,” she says.
“It’s not in our interest if our customers go down the tube but it’s also not in our interest to continue to allow people to run up debt they’re never going to pay.”
Supplier relationships are under strain as never before. The onus is now on both suppliers and printers to manage the relationships with much more attention.
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