Cash flow pressures impair recovery: D&B survey

An alarming number of Australian businesses are willing to miss supplier payments and tax payments, says survey

October 27, 2009

Australian firms risk being yet another statistic on the failed business register by incorrectly managing cash flow and not meeting payments, according to Dun and Bradstreet (D&B).

The firm’s latest study reveals 66 percent of businesses are prepared to miss supplier payments if they are unable to pay all their accounts, while 15 percent are prepared to miss a tax payment.

Results also reveal many firms are unaware of the implications of paying late on their ability to access credit, with close to two-thirds indicating that if they knew late payments would detrimentally impact their credit standing they would be more likely to pay on time.

The study’s findings follow D&B’s latest trade payments data which reveals Australian firms averaged 51.8 days to settle accounts in the September quarter.

According to D&B, the Business Payment Priorities Study provides clear evidence that cash flow pressures remain prevalent, despite signs Australia is on the path to recovery.

Fifty-one percent of firms admitted to having paid their bills late in the past 12 months, with one in four paying in a severely delinquent manner (60-plus days past due).

Cash flow issues (13 percent) and customers paying late (18 percent) were two of the key reasons executives provided for their own poor payment behaviours.

D&B CEO Christine Christian says Australian firms’ are hurting each other and themselves by adhering to such practices.

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

"However, the payment habits of Australian firms are making cash flow management increasingly difficult. More than half of firms admit to paying their bills late, and one in four are paying in a severely delinquent manner. Consequently, the cash flow of Australian firms is coming under increased pressure despite improving economic conditions," she says.

With an alarming number of firms indicating they would be willing to miss payments, more and more businesses may find themselves unable to access credit.

The Payment Priorities Study reveals 61 percent of firms would be more likely to pay their bills on time if they knew late payments were being listed with a credit reporting bureau and could worsen their credit standing.

Conversely, the listing of early payments with a bureau (improving the credit standing of firms) would make 29 percent of firms more likely to pay promptly.

Contact by a debt collector was another motivator for on-time payment, with almost half (47 percent) of firms indicating they’d be more likely to pay on time if they were contacted by a collections firm.

Smaller firms are most likely to respond to collections activity, with 13 percentage points separating the impact on larger firms as compared to those with less than 100 staff.

Christian says it is evident Australian firms will continue to face challenges as the economic recovery unfolds.

She warms businesses must rectify cash flow management procedures in order to survive the downturn.

"In this environment, survival and prosperity are dependent on firms maintaining a strong focus on the fundamentals of cash flow management and implementing the right strategies to ensure that customers pay promptly."

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