Bill payments trend expected to continue

Businesses are paying their bills nearly a week faster than at the height of the financial crisis, a new report shows.

But Dun & Bradstreet's trade payments report for the December quarter indicated payment terms had stopped getting better after three consecutive quarters of improvement.

In the last three months of 2009 businesses averaged payment terms of 44.6 days, compared with more than 50 at the height of the global economic crunch.

Dun & Bradstreet New Zealand general manager John Scott said the overall trend was for faster payment, something businesses needed to encourage and monitor for their own wellbeing.

"It's about how you use your money and how many times you can use your money in the same year. The slower your terms the less you can use it, and you have to fund the gap with your reserves or through loans."

With the recession all but gone, any recovery would be hampered by tardy payers, slowing down cashflow in general. "Businesses aren't able to invest in future products and innovations."

The first quarter of 2010 could be an anomaly in the trend due to businesses holding back money over Christmas to pay out holiday pay and early year tax payments.

But Mr Scott said after March the trend was for further reductions in payment terms. "As the economy picks up, turnover picks up, people start ordering more [and] you'll see a return to better times." But it was up to individual firms to keep their edge on their accounts receivable.

Small companies needed to act swiftly to keep their cashflow coming if they were to make the most of the recovery. "You want to be creditor number one, not creditor number 21 in that queue. If businesses let their focus waver, the recovery of their own business might falter too."

Peter Sherwin, a partner in accountancy consultancy Grant Thornton, said the report showed a real trend for small business and he had seenproblems with payment drive an increase in businesses using factoring firms to improve cashflow.

Factoring companies lend money on security of an unpaid bill and then take a fee when payment finally occurs.

Mr Sherwin said factoring had increased by about 15 per cent since the financial crisis sent businesses scurrying for extra cash.

Some businesses delayed paying suppliers to give themselves more cash, and jilted creditors were reluctant to hassle valuable customers, he said. "It's a bit of a dirty trick, but when you need cash you stretch your creditors."

Mr Sherwin said a client who was abusing payment terms was often not the sort of customer a business needed and the relationship should be looked at carefully.

"It's critically important to keep on top of the cashflow."

- © Fairfax NZ News