Payments slowdown bodes ill for state of economy

By: Rob McKay

Dun & Bradstreet sees interest rates staying on hold due to cashflow hit

Payments slowdown bodes ill for state of economy
The Dun & Bradstreet graph


Transport may be amongst the quickest payers in the economy but will mean little in the face of the worst national slowdown in invoice payments from customers in three years.

And ‘transportation’ is not immune to the trend, with payment times rising along with every other of the 13 sectors measured except ‘telecommunications’, ‘forestry’ and ‘fishing’, Dun & Bradstreet's (D&B’s) latest Trade Payments Analysis shows.

Business-to-business payments were made in an average of 56 days during Q1 2014, three days slower than in the previous quarter and two days slower than a year earlier, in a sign that business finances may be under strain.

"The slowing in payment times is another piece of news that suggests the economy has lost some momentum in recent times after a strong end to 2013 and a positive start for 2014," D&B economics advisor Stephen Koukoulas says.

"The tendency for firms to take longer to pay their bills is consistent with possible pressures on their cashflow, which could be the result of a softening in profit growth.

"For the RBA, the run of softer news on the economy means that any chance for interest rate increases is very limited and unless there is a clear improvement in the economy in the next quarter or two, there is some risk interest rates could be cut."

D&B states that while first quarter payment times typically slow due to a lagging impact from reduced summer holiday trading, the first quarter slowdown "is the most pronounced since 2011".

These findings follow D&B's latest Business Expectations Survey, which found that a quarter of businesses (26 per cent) consider cashflow the issue most likely to influence their operations, ahead of wages, interest rates, fuel prices, access to credit, and the level of the dollar.

According to head of group Adam Siddique, the slow payment cycle will have a negative knock-on effect for the business sector.

"The steep rise in the number of days taken to settle accounts is an unwelcome development given some other more positive readings we've been seeing in the economy," Siddique says.
"While businesses are upbeat about increasing their sales, these latest findings suggest they are experiencing difficulty managing their finances and paying their expenses on time.

"When bills are paid late it interrupts the cashflow that businesses need to cover their own operating costs, which in turn delays how quickly they can pay their suppliers − and so the cycle continues."

The report can be found here.

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