TWO-THIRDS OF BUSINESSES FAIL TO PAY BILLS

THE number of Australian firms paying their bills more than three months late has jumped 20 per cent while two-thirds are taking longer than the standard 30-day period to pay company accounts.

A report by Dun & Bradstreet reveals startling evidence that an increasing number of businesses are feeling the pinch with national payment terms reaching 53.4 days during the June quarter 2011.

While business-to-business payment times improved marginally during the quarter, the latest Dun & Bradstreet Trade Payment Analysis found the number of severely delinquent payments, those 90 days or more overdue, jumped almost 20 per cent compared with the June quarter 2010.

It means businesses are forced to wait more than three months for payment for services rendered or goods received. The number of businesses paying trade accounts between 61 and 90 days late
has also increased by 36 per cent since last year.

Smaller firms have struggled the most over the last 12 months, with payment terms blowing out by an average of two days compared with the June quarter 2010. While larger businesses remain the slowest payers, payment terms for bigger firms have deteriorated at a far slower rate than their smaller counterparts.

Payment terms reduced by almost three days during the June quarter compared with the March quarter but remain at concerning levels compared with 12 months ago, indicating that businesses are again showing signs of financial strain.

Dun & Bradstreet CEO Christine Christian says the continuing high rate of delinquency is concerning given the importance of trade credit to the health of the nation’s economy.

“Individual businesses are the unsung bankers of our economy,” says Christian.

“Business-to-business lending through the extension of trade credit amounts to billions of dollars a year. The rate at which these micro-loans are being paid back is a key indicator of the health of Australian businesses.”

Snail pace

The public and private sectors each experienced deteriorating payment terms over the last 12 months, to 55.3 and 53.4 days respectively.

Although both sectors reduced payment terms during the June quarter, the time taken to pay trade accounts remains inflated compared with 2010. Firms in the public sector maintain their status as the country’s slowest payers – taking an average of between an additional three to four days to pay accounts over the last year.

Industry snapshot

Transportation, wholesale and services firms were the best payers in the June quarter, averaging between 50 and 52 days to pay their bills. This is compared with electric, gas and sanitary services at 56.2 days, mining at 56.4 days, communications at 56.5 days and forestry at 62.6 days.

As well as being the slowest to pay trade accounts during the second quarter, the forestry industry 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.

Fishing firms were close also with payment terms deteriorating by four days over the last year and the mining sector taking three days longer to pay bills during the same period.

All of the 14 sectors examined showed some level of improvement in payment terms during the June quarter, although none more so than the services and financial, insurance and real estate sectors – shortening terms by four days and three days respectively.

Size matters

According to the data, larger firms have traditionally been the slowest payers with payment terms for firms with 500 or more employees sitting three days above the national average at 56.3 days.

Firms with 50 to 199 employees were Australia’s best payers with an average payment term of 49.2 days, however smaller enterprises are showing increasing signs of distress.

Christian says the improvement in payment terms since the March quarter, particularly within key industries such as retail and service-based businesses, can actually indicate financial distress.

“Businesses have a tendency to become lazy with following up overdue accounts during periods of high cash flow and it is only when the company begins to experience distress as a result that attention begins to be paid,” she says.

“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.

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