Small business caught in payment vortex

Small business caught in payment vortex

The number of Australian businesses paying their bills on time fell markedly during the June quarter, as businesses struggle with reduced cash flow.

According to the latest Dun & Bradstreet Trade Payments Analysis – examining the ability of firms to pay their bills, and pay them on time – the number of payments falling within the standard 30-day term fell 16.5 per cent quarter-on-quarter.

Further underscoring the deteriorating conditions faced by businesses is the performance of small businesses, which recorded the biggest deterioration in payment terms of 2.2 days. Businesses with between one and five employees are now operating under an average term closer to that of larger firms, at 53.2 days.

According to Dun & Bradstreet director Adam Siddique, cash flow issues within the small business sector will have a significant knock-on effect to the rest of the economy.

“It is particularly concerning that SME are waiting longer to be paid, and as a result are taking longer to pay their own bills. Trade credit constitutes a significant and critical portion of non-banking finance. When this is delayed, it withholds millions of dollars from businesses and the wider economy,” Mr Siddique said.

“Small business payment terms now more closely resemble those of a large corporation, however, small operations are less equipped to manage for cash flow issues, particularly if they are waiting more than two months to be paid for goods and services.”

Conversely, larger firms managed to reduce payment terms in the June quarter by a day on average, with businesses employing between 50 and 199 staff shedding 1.6 days during the quarter to 50.3 days. This was significantly lower than the national average of 53.6 days, which rose by almost a full day.

Average national trade payment days Q2 2009 - Q2 2012.

In addition, two-thirds (62%) of all trade payments were late during the second quarter. The number of severely delinquent payments (90+ days overdue) also rose noticeably during the last 12 months – up 13 per cent since the June quarter last year.

“The payment terms of Australian firms have been trending steadily upwards throughout 2012, the result of a conservative consumer and continued economic uncertainty impeding cash flow.

“It is likely this trend will continue into the second-half of the year, as firms struggle with a difficult trading environment,” said Mr Siddique.

Publicly-listed firms, usually among the nation’s slowest payers, bucked the trend by shedding 2.8 days from average payment terms to 54.7 days. Private companies, however, saw deterioration in terms of 0.9 days to 53.6 days.

At an industry level, finance and retail businesses recorded the most notable quarter-on-quarter deterioration, with average payment days rising 2.7 and 1.7 days respectively. Both sectors now operate under a payment cycle among the highest in the country at almost three months.

Utilities and communications firms also maintain elevated trade payment terms, at 56.7 and 55 days respectively. Utilities firms now operate under the longest trade payment terms of any sector, increasing payment terms an average 0.2 days during the June quarter.

Conversely, the forestry and fishing sectors recorded a dramatic fall in payment terms, improving account settlement times 4.9 and 2.4 days respectively quarter-on-quarter.

“We have witnessed a number of high profile failures during the past 12 months, in part a result of cash flow issues related to slowing demand and higher operating costs. This is obviously impacting business payment terms,” said Mr Siddique.

“During more difficult periods, it becomes increasingly critical for business to remain focused on fundamentals such as cash flow. A proactive approach to risk and receivables management can often prevent a situation where businesses wait months to be paid.”


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