When big is really lots of littles


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I met with a trade business’ owners last week and they were asking me whether they needed to have a large group builder fill in a credit application form, or would they be ok as ‘they are a large company’? Let me answer that question in a rambling and round about longform manner …

After having worked in the credit management industry for the majority of my adult life – and let me assure you I am no spring chicken – I guess I have taken for granted the viewpoint I have of company structures and what they mean in the credit management realm.

I can see how good marketing and branding guidelines can blur the lines between what is one large entity and what is many small entities, all wearing the same uniform. The structure is designed to give the consumer the impression that the business you are dealing with is established, competent, financially secure and rock solid.

It also gives suppliers that do not see the local “office” of the large company as the small independently owned, financially limited, recently established, operator of average competence that it perhaps could be.

It could, conversely, be the best client they ever had, with zero issues. A lot of times this can be a blind gamble. Group home building companies do on the most part vet their applicants carefully, but a few do slip through occasionally.

I know several highly skilled, financially secure and very successful builders that have joined group home building franchises that have delivered a premium product, paid all suppliers on time and were loved by their customers.

I have also known several very average builders with poor financial management skills and terrible management techniques that have left a slew of unpaid subbies, suppliers and very disappointed homeowners throughout their careers – they too have been part of the same brand group home builder as the aforementioned legends.

Now of course, when the reports of non-payment and court cases started to be noticed by the franchisor they dispatched the lawyers to remove the franchisee from the network and pursue them for breach of contract damages as per the agreement signed.

By this time a major supplier, financier or the IRD would have probably pursued a personal guarantee or judgement enforcement against the director of the independently owned building firm (that wore the uniform of the large, corporate building firm) and be well on the way to bankrupting them. Any damages awarded to them after much expenditure and brand damage would be so insignificant as to make pursuing litigation a futile exercise, save for sending a message to other franchisees.

A franchisor, in my experience, is seldom willing to pay for the financial failures of its franchisees – often all a jilted supplier will get from the franchisor is a promise for the next franchisee in the area to use them as a supplier.

I’m sure after the last experience the supplier had with a franchisee this is not an attractive prospect. If the franchisor has signed a corporate or personal guarantee in the favour of  a franchisee then they are responsible for the debts – if they haven’t, they are not.

My point is that there are good businesses and there are bad businesses in every industry. Just because a business looks similar to one that you have positive feelings towards does not make them the same.

Any time you are suppling to a business that is part of a group you need to establish what the ownership of that individual business unit is.

The easiest way is to get them to complete a client information form with your terms attached. This will tell you everything you need to know and then you can do what you need to as far as checking them out on centrix or similar. Then you can at least gamble with your eyes open.

Just a thought.

Related: When ‘theft’ is not a crime

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Nick Kerr
Nick Kerr
Nick Kerr is the director of IPI Group Limited. He can be reached on 021 876 527 and nick@nzipi.com.

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