Payment terms risk blow-out, warn D&B

Date: 28.07.2009

Australian firms improve payment terms for first time in many months, yet remain significantly above standard 30-day term

Australian firms have improved payment terms for the first time in many months, yet remain significantly above the standard 30-day term.

Dun & Bradstreet’s (D&B’s) latest quarterly trade payment analysis reveals payment terms have improved across the board, with a drop of 2.6 days since the previous quarter reducing terms to an average of 54.8 days.

However, business-to-business payments need significant improvement, amid warnings of future blow-outs.

According to D&B, big business, public firms and companies in the electric, gas and sanitary sector are the worst payers.

In a separate study, D&B has rated more than 25,000 Australian firms a higher risk of paying their trade accounts in a severely delinquent manner since April 1, 2009.

This indicates that despite the improvement in payment terms in the June quarter, there could be more cash-flow pain to come for many businesses.

D&B CEO Christine Christian says the improvement in terms is a positive sign, yet she warns further difficulties could lie ahead.

"In the current climate cash flow and liquidity are absolutely critical to the ongoing viability of firms.

"The latest trade payments data shows an improvement in payment terms which will undoubtedly assist business cash flow.

"However, to reverse the negative impact of long-term lagging payments and provide a significant boost to business funds will require a sustained period of significant and continual improvement," she says.

"Consequently, we believe pressure on payment terms and cash flow will persist at least through until the end of 2009. The flow-on effect of this trend is a reduced focus on business development and investment, and this means Australia’s economic growth will continue to come under pressure."

D&B reveals big business continues to be the worst payers, having held this position for in excess of 11 consecutive quarters.

However, the 2.6-day improvement since the previous quarter brought the group’s terms back below 60 days (59.5).

Firms with six to19 employees continue to be the quickest to pay.

An improvement of 2.4 day quarter-on-quarter and 1.6 days year-on-year had this group averaging 51.5 days to pay its bills.

Meanwhile, businesses with 200 to 499 employees were the biggest improvers, reducing their payment terms by 3.2 days quarter-on-quarter.

This group averaged 56.3 days to settle accounts in the June quarter and was the second slowest paying group.

On an industry basis, an improvement of 1.8 days quarter-on-quarter took the agriculture industry’s payment terms back under the 50-day mark (49.2) and kept them in the position as the fastest-paying sector.

The fishing sector was just behind at 49.6 days, following a 3.4 day improvement quarter-on-quarter.

The electric, gas and sanitary services sector was the slowest to pay in the June quarter and the only sector to be above the 60-day mark (60.3).

Meanwhile, the finance, insurance and real estate sector had the biggest improvement in terms, down four days quarter-on-quarter to average 54.9 days.

Private companies have continued the trend of being quicker to settle their accounts than their public company counterparts, a position they have held since the third quarter of 2008.

Private firms took 2.6 days off their payment terms quarter-on-quarter to average 54.7 days to settle accounts during the June quarter 2009.

Meanwhile, public companies improved terms by 2.4 days quarter-on-quarter, taking their payment terms back under the 60-day mark (59).

Christian says when the impact of Government stimulus measures begins to wear-off, payment performance could continue to worsen.

"Regardless of an organisation's size or sector, strong cash flow is a critical success factor. Australia is faring better than other nations amidst the global credit crisis but if we are to experience sustained improvement that is capable of putting us back on the path to growth, then continuing to reduce payment cycles must be seen as a priority," she says.