Slow bill payments endangering credit ratings, survey shows

Kiwi firms are hurting each other by paying their bills late and are in danger of locking themselves out of the credit market, research shows.

Eight in 10 firms were prepared to miss supplier payments if they were unable to pay all their accounts, said credit reporting firm Dun & Bradstreet.

Half of firms were settling their bills late as a result of cash-flow issues or because their own customers were paying late.

Dun & Bradstreet general manager John Scott said firms were hurting each other and themselves.

"Cash is absolutely critical to business survival and prosperity in an economic recovery.

"However, the payment habits of New Zealand firms are making cash-flow management increasingly difficult."

The research showed many firms were unaware of the implications on their ability to access credit of paying late. Six in 10 firms indicated that if they knew late payments would detrimentally impact their credit standing they would be more likely to pay on time.

The finding comes at a time when financial institutions and credit providers continue their stringent focus on reference checks as part of the credit assessment process.

Mr Scott said firms were indicating they would be willing to miss payments to their suppliers but these were the very payments that were recorded on their credit file and assessed by lenders and trade credit providers when they applied for funds.

"This means firms could find themselves unable to access credit as lenders continue their vigilant focus on risk management."

John Roberts, managing director of credit reporting firm Veda Advantage, said the results were consistent with a recent survey the company did on small to medium-sized enterprises (SMEs).

"Fifty-nine per cent of SMEs were experiencing delays in payments and they in turn were delaying paying themselves."

Commercial credit defaults were up 59 per cent on the same time last year, he said.

It was unsurprising so many firms were unaware late payments could affect their credit rating, and Veda research showed less than 20 per cent of companies did credit checks on the people they did business with.

Business NZ chief executive Phil O'Reilly said the Dun & Bradstreet survey results confirmed what he was hearing from the business community. "It's been an issue for a while now. It's just one of the symptoms of the recession."

Most businesses knew the effect consistently tardy payments would have on their credit prospects and it was common practice for firms to check the credit ratings of business customers and suppliers, he said. "If they're not doing that, then more fool them."

Mr Scott said firms could influence the payment behaviour of customers and ultimately improve their cash position by dealing appropriately with administrative issues.

One in 10 firms indicated they had paid their accounts late because the purchase order number had not been quoted on their invoice and a further 11 per cent said the bill had been sent to the wrong address.

Contact by a debt collector was another motivator for on-time payment, with more than half of firms indicating they would be more likely to pay on time if they were contacted by a collections firm.

- © Fairfax NZ News