The barter system prevalent in the construction sector is strangling cash flow for suppliers, and a solution spanning various stakeholders has to be found, Arthur Calleja, the managing director of Würth Malta, said.

He said that getting paid on time in Malta was a problem across the sectors but that construction was by far the worst.

Management time dedicated to credit control can be utilised in a more productive way which would ultimately contribute to boost company KPIs.

“In Germany, customers give their banks a one-year mandate to pay Würth directly – getting a discount for early payment, for example. Thanks to this, 88 per cent of payments are made on time via the banking system.

“In Malta, up to until a few years ago, only three or four per cent of our customers in other industry segments paid on time. The value of direct bank payments has today increased to circa 10 per cent of total receivables and we have also seen an increase in cash sales – but not in the construction industry. The problem is not to persuade the customer to buy Würth products, just to pay up on time!”

You cannot refuse to give credit; it is just not possible in the construction industry

Traditionally in Malta, various craftsmen involved in construction – from mechanical engineering to plastering – settle transactions through ‘exchange of business’ or barter. But this puts unnecessary pressure on companies’ cash flow. Mr Calleja explained that companies like Würth cannot accept property, goods or services as barter, and late payments could constrain the company’s considerable growth potential.

“This is the major negative issue as we import and distribute products. We even offer on-site delivery, without a minimum order level. We invest in people, knowledge and high stock levels. So if you get paid by your customer 10 or 12 months later, then it has an impact on your strategy. A collection period of over 10 months will adversely impact the company’s cash flow.

“But what is the alternative? You cannot refuse to give credit; it is just not possible in the construction industry. Our customers are themselves paid in instalments as each project stage is completed and certified. Large construction projects can easily have 20 different contractors on site simultaneously, so one contractor can easily hold up the rest,” he said.

There are two other aspects that worry Mr Calleja: direct imports via internet of inferior quality products – not limited to the construction sector – which should “be regulated to conform with standards and have the necessary certifications”.

Another issue is Sicilian traders who market similar ranges of products with no after sales but at cheaper prices.

“Of course, we accept that this is a free market. But there is no escaping that it puts unnecessary pressure on our pricing,” he admitted.

The local company is healthy on a variety of indicators, from sales and profitability to headcount and stock turnover. This ensures the support of the group which financed the new headquarters in Żebbuġ. However, there is constant pressure, as the local firm is benchmarked against larger markets like Greece, Italy and the Balkans – the other countries in the Würth region that Malta forms part of.

“The Würth Group has its main logistics centres in southern Germany and, if products are out of stock, in other group companies they can be shipped directly to large customers! Clearly, we cannot do that. We have to think about the lead time for freight and, in the interest of customer relations, we have been known to bring things in by courier,” he said.

Is there a solution? Mr Calleja sees two ways to improve the system. The first is the supply side: banks could take a more proactive role and the government could ensure that its tenders are paid on time.

The second aspect is more under Würth’s control: “We have to ensure that we are disciplined and monitor all our customer accounts, so that we can understand when delays are genuine.

“To do this, you have to be in regular contact with your customers. You need to speak to their management and before the credit limit is being reached, you need to let your customer know. All too often, we are distracted by other things and, if you do not chase a customer, they will not pay.

“Finally, we succeed in paying our suppliers on time and, as a consequence, we should expect our receipts to be timely too.”

€12 billion sales
67,000 employees
3 million customers
100,000 products

Würth a second look

When Würth came to Malta in September 1988, the island had already seen an influx of German manufacturing companies. But Würth was not interested in opening a production plant here – which would have entitled it to incentives. The wholesale and retail supplier wanted to sell its tools, equipment, chemicals and fasteners here but since there was a protectionist policy in force at the time, a foreigner could not own a company here. However, the set-up and operations were controlled by the German group.

Two years ago, the company moved from Qormi to state-of-the-art premises in Żebbuġ, a €6 million investment which was funded jointly by the group (€2.3 million) and by the Maltese company (€3.7 million).

“We were growing – we doubled our headcount between 2002 and 2012 to 60 – and needed a central location with more space. We have over 500 visitors at the shop every day. This would not have been possible in Qormi, where the premises were small and parking was such a nightmare!,” he said.

“Steady growth could only be achieved through the support of the mother company giving us a clear vision, and the local human resource team which was ken to perform and reach set targets,” he explained.

“In order to tap into the potential of the customer base, we started ‘divisionalisation’ – our secret weapon – into six sectors: automotive and cargo, wood and turnkey industries, metal, construction, nautical, and wholesale trade,” he explained.

Sales consultants were trained as pure breed specialists who knew that division inside out, using the ‘train the trainer’ concept to disseminate the knowledge.

The range is so extensive that it is hard to describe but Mr Calleja said it was basically there to support the sectors in which it operates: “We supply everything that a skilled worker, manufacturing plant or site would require – except the raw material itself. So, for example, we supply everything a carpenter would need to turn raw wood into furniture – even the protective clothing he would wear – except the wood itself!”

The group, which today owns more than 400 subsidiaries worldwide, was founded as a small company in 1945, and remained family-owned, now in its third generation.