Concerns for some businesses as payment periods rise

Fairfax

BILL OVERDUE: Businesses are taking longer to pay their bills to other businesses, raising concerns that the wellbeing of some enterprises could be at risk.

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Businesses are taking longer to pay their bills to other businesses, raising concerns that the wellbeing of some enterprises could be at risk.

Dun & Bradstreet New Zealand general manager John Scott said many businesses were being denied access to their cheapest source of funding – their own.

"With the credit markets effectively closed businesses are finding it increasingly difficult to source credit to invest in their businesses," he said.

"With a significant portion of business failures the result of poor cash flow, any increase in payment periods could have severe detrimental impacts or result in irreversible financial difficulty."

Dun & Bradstreet today said its quarterly trade payments analysis revealed the average payment period across all industries was now 48.2 days, more than five days higher than in the December quarter.

The increased time businesses were taking to pay each other was placing additional pressure on company cash flows in an environment where access to credit had already tightened, Mr Scott said.

"It is clear that some businesses let their collections practices slip during strong economic conditions and were caught off guard when the cycle began to turn," Mr Scott said.

"These businesses are now being denied access to funds at a time when cash is of paramount importance, simply because they don't have the processes in place to maximise cash flow.

"They have left themselves vulnerable at exactly the wrong time," he said.

The analysis found the manufacturing sector was the slowest to pay at 53.6 days, an increase of 5.3 days on the December quarter.

Next were the electricity, gas and sanitary services, and wholesale trade sectors, both averaging more than 50 days to settle accounts.

In a turnaround from the December quarter, the private sector was now 1.8 days slower to pay than the public sector, after the private sector payment period increased 5.1 days to 48.2 days.

Smallest businesses were slowest to pay, with those employing between one and five people taking 54.4 days, 5.7 days longer than in the December quarter.

Businesses with 500 or more employees were the fastest payers, but at near 45 days they were still taking more than two weeks longer than the standard term.