One truck is not one truck

New Zealand is small and tightly connected. When one business goes into liquidation, the money it owes does not stay with it. It runs down the line to the subcontractors and suppliers it owed, then to their staff and their suppliers, and on to the families at the end of the job. Count what one truck on the road depends on, and you get to around 45 businesses.

How many businesses does one truck represent?

Have a guess before you read on. How many businesses do you think one truck on the road represents?

Start with the obvious ones. The driver. The owner. Whatever is being hauled. The tyres. The diesel mechanic who keeps it running. Then think about the road it is driving down: the traffic management, the seal, the earthworks. The number starts climbing quickly.

Keep going and it falls into three layers.

• The truck itself. The fuel supplier, the tyre business, the heavy diesel repairer, the auto electrician, the parts supplier, the insurer, the finance company, the signwriter, the business that supplies the driver’s uniform.
• Beyond the truck. The business sending the goods and the one receiving them. The warehouse, the packaging and pallet suppliers, the port, the quarry, the farm, the manufacturer, the wholesaler, the retailer.
• The infrastructure underneath it. The roading contractor, the civil construction business, traffic management, the asphalt and concrete suppliers.

By the time we have counted it properly, one truck on the road is feeding around 45 separate businesses. So one truck is not one truck. It is a moving link in a chain of businesses relying on each other.

A building site works the same way. The builder, the earthworks, the concrete, the plumbers, the sparkies, the tilers, the GIB stoppers, the carpet layers, the curtain makers, the cartage. When one liquidation lands in the middle of that, it goes off inside a small economy of its own.

Everything gets passed down the line

New Zealand is this big, and we are very tightly interconnected. Whether it is a liquidation or an unpaid invoice, everything just gets passed down the line. I can’t pay you because I haven’t been paid.

Each business in the chain has a choice when the money does not arrive. It can grin and bear it, and fund the gap itself, sometimes by selling an asset. Or it can pass the problem on to the next person. When enough of them pass it on, one liquidation becomes a row of dominoes, and it is very fragile. No business is an island. We are more like a house of cards.

We saw it here in the Waikato, when one liquidation affected everybody from the plasterers through to the companies installing garage doors. The effect is so widespread, across industries you would never think of as related.

Where one liquidation actually lands

One builder’s liquidation reached several of our clients at once. A glazier was owed about $20,000. Not the biggest number on the list, but still $20,000. A joiner had worked with the owner for years and never saw it coming: it just stopped.

The building sector is often a bit like the canary in the coal mine. When the economy turns, for good or for bad, the businesses connected to it feel it first. One of our clients has hundreds of customers fed by the building sector, and over about two months he was hit by six separate liquidations, one after another after another.

That is a different kind of exposure from having everything tied up in one big job. You can have a really broad customer base and still carry real risk if most of those customers work in the same industry. Simply through averages and mathematics, your chances of being caught by a liquidation somewhere in that base go up.

And it went further than the trades. A plumber who finished jobs directly for the homeowners found that some of them had ended up paying twice, once to the builder who never passed it on, and again to get the work finished. One homeowner paid $40,000 twice.

Another client of ours has been caught in five liquidations. The plans they had started putting together for retirement have been pushed back. These are people with families and plans. Behind every liquidation notice are mums and dads, real people and real teams, and none of them is just a number on a statistic.

In smaller communities

In small, close-knit communities it can be harder again. Nobody wants to rock the boat, so other people in the same town go unpaid and nobody does anything about it. The customer is someone you walk past in the street, and your kids go to the same school. That is a real relationship, and it is worth protecting. It still does not make you their bank.

Follow the liquidation on the Companies Office

Look the company up on the Companies Register by its correct legal name, and follow what is happening through the reports and documents filed there. Then put the director’s name into a director search, to see whether other companies of theirs are also affected. The full creditor lists are not always on the register, so here is where else to look, and how to read the report.

Where the ripple really starts

Most of the time, the ripple starts long before anyone appoints a liquidator. Businesses do sometimes get into a place where they are robbing Peter to pay Paul, and we have all been there. But if a business operates in the red over an extended period, it is technically insolvent, and it only takes one moment to tip it over. When it goes, the flow-on effect means a lot of other people do not get paid. Sometimes the responsible decision is the hard one: I can’t afford to be in business like this.

The cracks are there well before that moment, too. When the economy feels like there is a lot of loose money around, the fundamental cracks in how a business gets paid are covered up. When work slows, they open, and they open along the whole chain at once.

The ripple runs both ways

Now imagine if everybody was paying as they went. You would not have this flow-on effect, this domino effect of people passing the problem on. Instead of a spiral downwards, you get an upward one.

A business that gets paid in full and on time pays its own people and its own suppliers on time. The impact does not stop at the owner’s bank account. It moves into wages, families, suppliers, investment, training, communities and the wider economy. A business with that certainty becomes a stabilising force for everyone connected to it.

We can do so much better as an economy when we start fixing what we can control. You cannot control whether a customer three steps up the chain gets paid. You can control who you give credit to, and on what terms, and where you stand if one of them fails.

If a customer of yours has already gone under, start with what happens to your money when a customer goes into liquidation, and this week’s list of companies in liquidation shows who else is on the way through.