Trade terms sharpen contractors’ rights

Canterbury contractor and federation spokesman Nick Yeatman.

01-03-2010 | Not Specified

Terms of Trade for members of the Rural Contractors Federation is a relatively new but necessary part of doing business for members.

Federation vice-president Nick Yeatman is at pains to say that generally farmers are reliable customers when it comes to payment, but that relationship has been strained in recent months. This is not entirely the fault of farmer clients.

"We have had a number of circumstances where it has not been the farmer but their bank that is putting pressure on to lower their debt, and contractors are not getting paid."

Claims about this happening have circulated particularly in South Canterbury and Southland.

Bankers meeting contractors last spring assured them they would not stop farmer clients paying them. However they also advised that they have no control over what farmers actually spend money on and good communication between parties before starting jobs is essential.

Such issues have prompted the federation to compile a Terms of Trade for its members in the past three months. They include charging interest on the amount outstanding at the overdraft rate charged by the contractor's bankers plus 2% per annum.

The Terms of Trade are part of the federation's aim to ensure members are offering a set level of service and professionalism in an industry often smattered with undercutting and dubious practices from cowboy operators.

"All members are individually audited. Terms of Trade is only part of what is provided; checks are done on safety plans, ACC, and workplace policies."

Yeatman says having a formal contract with personal guarantees suited large one-off development jobs or significant seasonal operations but could present complications for smaller jobs agricultural contractors completed after a phone call and a quick set of instructions.

Personal guarantees contained within a formal contract would "become very complex" if they were applied to small individual jobs. "You would need provisions for variations and the only winners would be the lawyers," he says.

"Many of the crop sales in Canterbury would be supported by personal securities."

He says there have been a "number of occasions" when a personal guarantee has been called against, and he is now exercising one on a large client. Potential clients with dubious ability to pay bills are usually scared off to another non-registered contractor when confronted with a terms-of-trade agreement.

Yeatman put the success rate at 50:50 on getting money back through personal securities.

The only downside of a personal security is that no guarantee remains of when someone will pay, even if they are obliged to by the instrument.

"It is often more about the timing. For agricultural contractors, their suppliers will be demanding payment on time, along with personal securities from us as contractors."

Agricultural contractors can be particularly vulnerable, racking up large overdrafts to get their season running, and not receiving payment until later in December if farmer clients pay late for work done in spring.

"I know of a number of contractors who have been forced out of business by clients paying 60 days' late."

Reference to when payment is due, and interest incurred by not paying, within Terms of Trade certainly helps to get a more timely payment, Yeatman says.

Registration with the Rural Contractors Federation should also give farmers peace of mind that they are not employing a contractor of dubious nature who may leave them owing the IRD funds.

"It is possible the IRD can come back to that farmer seeking the tax value of the amount he undercharged by if it is proven he is not lodging income and GST declarations," says executive director Roger Parton.

Waikato contractor Becky Walling, of Walling Contractors, says she requires PPSI registration from farmers and sharemilkers they sell maize silage to.

"However we have never had to call on one. The issue around the Crafars was very much a one-off for the industry and farmers are generally good payers."

A director of a national veterinary chain says the practice does not use registrations on the PPSI, preferring to actively monitor client payment times. "The risk of course is that a good client becomes a bad one when they don't pay, but not until then."

He acknowledges retrieving money owed on consultations is impossible. Credit is not extended beyond 90 days. The practice has been forced to discontinue service with several clients each year.

"Vets can be between a rock and a hard place because refusing to turn up to a client who has not paid their bills can involve animal welfare issues, too."

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