Study shows increase in late trade bill payments

Australian businesses are taking almost a full month longer than average to pay their bills, according to latest D&B analysis

Study shows increase in late trade bill payments
Study shows increase in late trade bill payments

July 28, 2011

Australian businesses are taking almost a full month longer than average to pay their bills, according to the latest Dun & Bradstreet Trade Payment Analysis.

The study, which examines business to business payment terms, shows national payment terms reached 53.4 days during the June quarter.

Despite a slight improvement in business to business payment times during the June quarter, two-thirds of businesses still took longer than the standard 30-day period to pay company accounts.

Businesses are being forced to wait more than three months for much-needed cash, with the number of severely delinquent payments – 90 or more days overdue – jumping almost 20 percent compared with the June quarter last year.

Similarly, the D&B analysis found that the number of businesses paying trade accounts between 61 and 90 days late has increased by 36 percent since 2010.

During the last 12 months, a blowout in payment terms by an average of two days compared with the June quarter 2010 has caused difficulty for smaller firms.

By contrast, payment terms for bigger firms have deteriorated at a far slower rate than their smaller counterparts, though they remain the slowest payers.

Payment terms reduced by almost three days during the June quarter compared with the March quarter, however, Australian businesses are again showing signs of financial strain and remain at alarming levels compared to 12 months ago.

According to D&B CEO, Christine Christian, trade credit is an important barometer of the health of the nation’s economy, and as such, the continuing high rate of delinquency from Australian businesses is of concern.

"Individual businesses are the unsung bankers of our economy. Business to business lending through the extension of trade credit amounts to billions of dollars a year," Christian says.

"The rate at which these micro-loans are being paid back is a key indicator of the health of Australian businesses," she says.

Payment terms deteriorated both in the public and private sectors during the last 12 months, to 55.3 and 53.4 respectively, and although both sectors reduced payment terms during the June quarter, the time taken to pay trade accounts remains inflated compared with 2010.

Public sector firms are still the nation’s slowest payers, taking an average of three to four days to pay accounts in the last 12 months.

The best payers in the June quarter were firms in transportation, wholesale and services, averaging between 50 and 52 days to pay their bills, compared with electric, gas and sanitary services at 56.2 days, mining at 56.4 days, communications at 56.5 days.

The forestry industry, at 62.6 days, was not only the slowest to pay trade accounts during the second quarter but has also had the worst deterioration in payment terms in the last 12 months, taking on average seven days longer to pay bills than the same period last year.

On a state-by-state basis, Victorian and West Australian businesses were the best payers during the June quarter, with Victorians taking 52.1 days and those on the west coast 52.3 days to settle accounts.

Firms in the ACT and NSW improved payment terms the most during the June quarter, reducing terms by four and three days respectively.

Conversely, payment terms in Tasmania deteriorated more than the rest of the country, with the state’s firms taking three days longer to pay their bills than the same time last year.

Traditionally, larger firms have been the slowest payers, and payment terms for firms with 500 or more employees continued to sit three days above the national average, at 56.3 days during the June quarter.

Payment terms improved by an average of 2.5 days during the June quarter for businesses of all sizes, with firms employing 50 to 199 staff Australia’s best payers with an average payment term of 49.2 days.

According to Christian, the improvement in payment terms since the March quarter, particularly within key industries such as retail and service-based businesses, can actually be an indication of financial distress.

"When we see struggling sectors such as services and retail sectors begin to improve payment terms it is often because businesses in troubled areas of the economy understand the importance of maintaining cash flows, and make an effort to keep outstanding accounts under control," she says.

"Unfortunately, this is achieved by trimming fat from other key areas of the business such as capital investment and staff numbers."

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