Businesses continue to feel the pressure of the global economic downturn with payment terms rising to 57.6 days
Australian businesses continue to feel the pressure of the global economic downturn with payment terms rising to 57.6 days, following a steady increase since the global credit crisis was first identified in September 2007.
Dun & Bradstreet‘s (D&B’s) quarterly trade payment analysis reveals a five-day increase in terms since September 2007, taking business-to-business payment terms (all industries) to almost double the standard term.
Worsening economic conditions have affected businesses around the globe, forcing a number of countries to experience a rapid deterioration in payment terms. Western Europe and the Asia-Pacific region in particular have experienced significant increases in the percentage of payments paid significantly past terms, with eight and nine countries respectively paying 30 percent or more of payments at 30 days + past due.
According to Christine Christian, D&B’s CEO, the poor payment behaviours that Australian firms are displaying are an indicator that the global crisis is continuing to impact the cash position of Australian firms.
“Our findings continue to show that Australian companies are holding on to their cash for longer in an attempt to manage their cash flow and improve liquidity,” she says.
“However, the flow-on effect of this trend is a reduced focus on business development and investment, and consequently a further decline in economic growth. If Australia is to avoid the extent of pain that other nations are experiencing we need to ensure that payment terms do not continue along the same trajectory.”
State
Victoria continues to be the slowest-paying state, averaging 59.2 days to settle accounts in the March 2009 quarter – NSW and the ACT follow closely behind at 58.8 and 58.5 days respectively, both rising from 58 days in the final quarter of 2008.
Tasmania continued its position as the fastest-paying state averaging 52.6 days to settle accounts and just ahead of Western Australia. Western Australia’s figures have slowly risen in the past two quarters to reach 54.3 days at the end of Q1 2009.
Public vs private
Both public and private companies have increased their payments terms compared with Q4 2008, however, private companies are averaging payment terms in excess of three days quicker then their public counterparts.
Private companies averaged 57.4 days to settle accounts in the March 2009 quarter, up from 56.5 days in the previous quarter. Public companies’ terms also increased from the December 2008 quarter, averaging double the standard term (60.7 days) to settle accounts.
Sector
Segmented by industry, the electricity, gas and sanitary services sector is the slowest to pay (at 61.8 days), two days slower than the same stage last year (59.8). The fishing industry and retail sector saw the biggest increase in payment terms compared with the same period last year, up by 3.6 days and 3.1 days respectively.
The agriculture sector continues to be quickest to pay at 51 days, which is a decrease of 0.3 days on the previous quarter but slower than at the same stage last year. The agriculture sector has been the quickest to pay for five consecutive quarters.
Size
Small businesses are the quickest to pay, with companies in the 6-19 employee category more than a week quicker to settle accounts than big business (53.9 days), despite an increase of 2.4 days since Q1 2008.
Businesses with 500+ employees continue to be the worst payers, averaging double the standard term (62.1 days) to settle accounts. This is an increase of 2.8 days on the December quarter of 2008.
Region
According to Dun & Bradstreet’s Global Risk Report, payment problems have become a significant issue across the globe since the start of the credit crisis.
Payment terms in Western Europe and the Asia-Pacific region in particular, deteriorated substantially during Q4 of 2008.
Australia is the currently the fifth-worst payer in the Asia-Pacific region behind India, Malaysia, Pakistan and Indonesia, having paid 34.4 percent of its accounts at 30 days or more past terms in Q4 2008.
In Western Europe, the percentage of payments made at 30 days or more past due rose by 5.6 percent in Q4 to reach 28.5 percent of payments.
Consequently, 42 countries globally – including nine in the Asia-Pacific region – now pay in excess of 30 percent of their bills at 30 days or more past terms. An additional nine countries joined this group in Q4.
“The rapid slowdown in the global economy coupled with a drop in commodity prices, increased volatility in exchange rates and a fall in global trade indicate that payments performance will continue to decline in coming quarters,” Christian says.
“This situation will further exacerbate the challenges Australian firms are facing and will act as an additional brake on growth in the Australian business sector.
“This is an issue for both exporters and companies that trade locally.”
Regardless of an organisation’s size or sector, strong cash flow is a critical success factor. If Australian businesses are to stem the tide against global economic issues then reducing payment cycles must be seen as a priority.