Near 20 pc jump in number of debts referred

Number of B2B debts referred for collection has increased by close to 20 percent year-on-year and their dollar value is up by almost 50 percent

Near 20 pc jump in number of debts referred
Near 20 pc jump in number of debts referred

The number of business-to-business debts referred for collection has increased by close to 20 percent year-on-year and their dollar value is up by almost 50 percent, according to figures released today by credit reporting, collections and business intelligence firm, Dun & Bradstreet (D&B).

These findings come on the back of further research by D&B which reveals that almost 150,000 firms are now more likely to pay their trade accounts in a delinquent manner and that business-to-business payment days have reached close to double the standard term (57.6 days).

D&B’s research reveals that cash-flow issues are prevalent in the economy, however, the latest figures show that Australian firms are taking steps to improve their cash position and ensure their sustainability against the challenging economic backdrop.

According to Christine Christian, D&B’s CEO, executives are beginning to realise the critical role that the accounts receivable function plays in improving the cash position of their business.

"The current economic climate has undoubtedly created challenges for business," she says.

"As a consequence, cash flow and receivables management have come to the fore as executives have realised the critical role they play in ensuring the sustainability of business.

"A number of Australian firms are now acting on their arrears relatively quickly when previously they would have allowed them to accumulate for lengthy periods of time. These executives are seeking to address both current outstanding payments and longer term arrears, which is increasing the level of debt being referred for collection.

"With close to 80 percent of business failures said to be the result of poor cash-flow management, this is a smart move which could be the difference between a business continuing to operate profitably or falling into irreversible financial distress."

Examining the collections data by state reveals that the eastern states – New South Wales and Victoria – have led moves to improve their cash position, with these states placing the largest number of debts for collection in the March quarter of 2009.

Interestingly, D&B’s trade payments analysis reveals that businesses in NSW and Victoria were also the slowest to pay during the March quarter, averaging 58.8 and 59.2 days respectively to settle accounts.

Delaying bill payments for as long as possible is another tactic that businesses use to manage their cash flow, however, it can lead to an outstanding debt spiral that drags more and more firms into the late payment cycle.

Despite NSW and Victoria placing the largest number of debts for collection, the Northern Territory had the most significant uplift as compared with the March quarter 2008. Firms based in the Northern Territory increased their collections referrals by more than 50 percent.

Queensland firms experienced a similar uplift.

Analysing the value of debts referred for collection reveals that firms in NSW are chasing the largest outstanding debts. A 67 percent increase (the second largest percentage increase in debt values) in average debt values has left NSW firms trying to re-coup outstanding debts of more than $1,300.

The ACT accounted for the second-highest average debt values, following a 41 percent increase as compared with Q1 2008. This placed the ACT just ahead of Northern Territory based firms, whose average debt values rose by 73 percent to take them over the $1,000 mark.

Similar findings were also evident in D&B’s recent payment performance downgrades, with NSW, Queensland and the Northern Territory having the highest percentage of firms re-rated. More than 10 percent of firms in each state are now classified as a higher risk of paying their trade accounts in a delinquent manner.

These findings indicate that the economic downturn is likely to be prolonged and difficult for many firms, with cash flow expected to tighten further in the months ahead.

Christian says Australian firms have recognised that a relaxed attitude towards collections is no longer sufficient – in this new environment effective cash-flow management is critical to ensuring the ongoing sustainability of business.

"When the economy was booming executives were able to take a relaxed approach to their receivables process without suffering significant detrimental impacts.

"However, in the current environment where cash flow is of paramount importance, ineffective management of debtors will only result in your bill ending up at the bottom of the pile.

"Smart firms have realised the benefits of effective receivables in achieving a strong cash position and they have taken action to address poor payment behaviours," she says.

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