Seven regional Queensland industry groups and economic development bodies have requested major mining houses review their payment terms for suppliers.
In letters sent to the heads of five major mining houses operating in regional Queensland, the group outlined the significant negative impact the current 60-day payment terms has on the local supply chain in their region.
Gladstone Engineering Alliance chief executive officer Carli Homann said “with positive financial results being reported by mining houses the group requested mining houses revert back to more acceptable payment terms of 30 days to enable a sustainable business environment.”
Gladstone Engineering Alliance, Resource Industry Network, Central Highlands Development Corporation, Toowoomba and Surat Basin Enterprise, Greater Whitsunday Alliance, Townsville Enterprise and Capricorn Enterprise have been working together on this matter for several months now
Together, they recently surveyed regional business on the matter to help understand the impact extended trading terms was having in the regional supply chain across Queensland.
The survey found that more than 70 per cent of respondents are having trouble growing their business, and delivering goods and services because of the extended payment terms.
Almost half of respondents have sourced alternate bridging finance to mitigate the impact of the extended trading terms.
In addition, almost three quarters of respondents nominated that the extended trading terms have had a material impact on their organisation’s ability to deliver goods and services in some way. Many have been unable to pass on the extended trading terms and continue to pay their staff in seven days and their creditors in 30 days.
These businesses are now unable to allocate capital to research and development (which has been the mantra of mining houses) during the downturn to deliver more efficient goods and services to the mining houses.
Similarly, many businesses have cut back on staff training, maintenance and growth initiatives, all of which ultimately impact their ability to service and supply the mining sector, the survey found.
Homann continued: “The small to medium businesses are the back bone to our economy and the regional supply chain has always and continues to work diligently to provide the innovative solutions to assist mining houses achieve successful cost-effective, productive outcomes with quality equipment and professional contractors.
“It is widely acknowledged that without these businesses the mining sector would be significantly impacted.
“Ultimately, if the extended 60-day payment terms persist there will be fewer suppliers in the market, meaning higher prices, less competition, reduced capacity and the burden of R&D will fall entirely back to the mining houses.”
Homann said she recognised Rio Tinto reduced its payment terms from July 1 2017 for small- to medium-sized businesses from 90 days to 30 days to help improve SME’s cash flow, but said other mining houses needed to follow suit.
“At a time when our industry is under intense scrutiny from banks, the community and anti-coal activists, it’s important that the industry stand shoulder to shoulder to present a united sector and highlight the benefits of the resources sector and its contribution to the economy, and society at large and encourage the next generation of employees to work in the sector,” Homann concluded.