Corporate payments stall

Businesses expected to wait longer in Q1

25 February 2014

The rate at which Australian businesses are paying each other has not improved over the past year, with analysis of payments made during Q4 2013 showing that business invoices were settled in an average of 53 days; one day slower than a year earlier.

According to Dun & Bradstreet's latest Trade Payments Analysis, only 46 per cent of invoices were paid within the standard 30-day period, indicating that despite record-low borrowing costs, a lower exchange rate and healthy consumer spending during the Christmas quarter, cash flow remains an issue for many industries.

The credit bureau also expects to see payment times slow in the first few months of this year as a part of a lagging impact from reduced holiday trading hours. D&B's historical analysis shows that first quarter payment times have slowed from the previous quarter every year since 2008.

With payment times remaining slow, businesses are flagging cash flow concerns. According to D&B, 32 per cent of businesses consider cash flow to be the issue that influences their operations the most, more than the current level of the Australian dollar (16 per cent), interest rates (11 per cent), fuel prices (seven per cent) and access to credit (six per cent).

Despite the concern, 49 per cent of businesses have reported that they would miss payments to their suppliers if there was not enough money to cover all their expenses. Business credit cards (17 per cent) and business overdrafts (14 per cent) payment were the next most likely to be overlooked.

TPA Q4 2013 - chart 1

"At 46 per cent, the proportion of payments being made on time is detrimental to Australian businesses' ability to manage their cash flow, pay their expenses in timely fashion, and expand their operations," said Gareth Jones, CEO of Dun & Bradstreet.

"Trade credit is a vital component of a healthy economy, providing small businesses in particular with the means to run their operations. However, slow invoice payments limit this contribution, placing a drag on business sector growth at a time when we are otherwise seeing improvements in confidence levels.

"With payment times typically slowing during the first quarter of a year, we unfortunately expect to see cash flow remain an issue in 2014," he added.

During the December 2013 quarter, forestry and mining sector businesses were the slowest to settle their accounts, taking 58 days and 56 days respectively; one day slower than a year earlier. At the other end of the range, businesses in the fishing industry paid their invoices in the fastest average time, at 49 days, while agriculture, transportation, and services businesses were taking an average of 50 days.  

Across industries, larger businesses continue to pay their invoices at the slowest rate. Those companies employing more than 500 staff have taken 56 days to pay; one day slower than the year before and three days longer than the national average. Meanwhile, companies with between 50 and 199 employees were the fastest paying in the last quarter, taking an average of 47 days.

Despite relatively slow payment times among mining businesses, invoices were paid the fastest in Western Australia, at 50 days, highlighting the relative strength of the local economy. Businesses in the ACT averaged the longest time to pay their accounts during Q4, taking an average of 55 days.

TPA Q4 2013 - chart 2

"The trade payment data fits with the economy rolling along at a moderate pace of growth," said Stephen Koukoulas, Economics Advisor to Dun & Bradstreet.

"Firms are generally maintaining the time it takes to pay their bills, despite record low interest rates and signs of a lift in economic activity.

"If the economy continues to improve in-line with the pick-up evident in the Dun & Bradstreet's surveys of business expectations, then trade payment times can be expected to edge lower," Mr Koukoulas noted.


About Trade Payments Analysis

Business-to-business payment information is a highly predictive data set and a critical element in credit risk scores and business failures forecasting.

The distinct advantage of trade information over other forms of company data is its ability to provide insight into current performance. Company financials, which are considered to be critical to effective decision making, are reported relatively infrequently and as a consequence, organisations may be required to make decisions using data that is up to 12-months old. Conversely, because trade information is reported monthly, it reveals how an organisation is paying its existing obligation.

Trade data is also effective across all business sizes, being the most predictive element in SME scores and the second most predictive (behind financials) in other credit scores. The predictive nature of trade data combined with its timely availability enables businesses to properly assess credit risk.

This includes the identification of both high and low risk customers, thereby enabling firms to minimise the risk of late payments and bad debts and identify the good credit accounts that will create long-term, profitable credit relationships.

About Dun & Bradstreet

Established in 1887, Dun & Bradstreet is Australia and New Zealand's oldest credit information bureau. Backed by its extensive financial database, D&B helps businesses to make informed credit decisions, and consumers to access personal credit information.

D&B works across the entire credit lifecycle to deliver data-driven solutions in sales and marketing, credit reporting and debt management.

Through analysis of financial and behavioural information, D&B also provides current and predictive assessments of the economy, business conditions and credit activity.

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