Business-to-business payment terms have blown out to their highest level since 2001, increasing cash flow pressure on Australian businesses already buffeted by a shakier economic outlook.
The latest figures in Dun & Bradstreet’s (D&B’s) quarterly trade payments analysis reveal that the average payment period across all industries has reached 55.8 days.
While businesses of all sizes saw a blow out in the length of time it took to get paid, suppliers of big businesses are feeling the greatest pressure. Businesses with 500+ employees are taking 62.7 days to make payments, more than double standard payment terms and an increase of 5.6 days from the December quarter.
Despite maintaining payment periods which are more than three weeks past normal terms, small businesses were the quickest to pay. The 1-5, 6-19 and 20-49 categories took just under 55 days to settle accounts in the March quarter.
According to Christine Christian, D&B’s CEO the increase in the time businesses are taking to pay each other is placing additional pressure on company cash flows in an environment where access to credit has already tightened.
“The impact of the credit crunch and the tougher business environment is evident in D&B’s payment trends data,” said Ms Christian.
“It is clear that during buoyant economic times many companies let their collection practices slip. However these same companies were unprepared for the turn in the credit cycle and consequently are struggling to ensure strong cash flows. They have left themselves vulnerable at exactly the wrong time.”
The Communications sector is the slowest to pay at 62.2 days, an increase of 6.5 days on the December quarter. The Electricity, Gas & Sanitary Services and Mining sectors follow at 61.0 and 59.2 days respectively.
The Agriculture industry was the quickest to pay at 49.8 days, an increase of 2.5 days since the previous quarter.
Public companies continue to be slower payers than their private counterparts however the gap between the two has increased further. The public sector added 6.5 days to the time it takes to settle accounts while the private sector jumped 3.2 days. Taking almost five weeks longer than the standard term, public companies averaged 64.5 days to pay bills in the March quarter; private companies took 55.6 days.
Examining the data by state reveals that NSW is the slowest to pay at 57.6 days. NSW saw the biggest increase of any state at 3.7 days. At 52.2 days and following an increase of 2.6 days, Tasmania was the quickest paying state.
Dun & Bradstreet’s Global Risk Report shows that Australia’s payment problems are not unique. A number of countries in the Asia- Pacific region pay a significant percentage of payments at 30 days or more past terms, with Australia fourth on the list of bad payers. In the December quarter of 2007 Australia paid 39.3% of payments significantly past terms.
According to Ms Christian, many businesses are being denied access to their cheapest source of funding – their own.
“With the credit markets effectively closed businesses are finding it increasingly difficult to source credit to invest in their business.
“With a significant portion of business failures the result of poor cash flow, any increase in payment periods could have severe detrimental impacts.”