Payment terms stretch again as SMEs fight continuing cashflow squeeze

The outlook for Australia’s economy might be improving, but there appears to be no end in sight to the cashflow pressures hitting most SMEs.

New data from credit reporting agency Dun & Bradstreet shows payment terms stretched by 2.1 days to 53.9 days, all but wiping out the fall in payment terms seen in the December quarter.

Given the fact that March is traditionally a bad period for bill paying, D&B chief Christine Christian is concerned that payment terms could stretch out to GFC levels in early 2010.

“Businesses have begun to upgrade investment plans and confidence levels bode well for domestic demand in 2010. However, liquidity and access to cash are absolutely critical in an upturn. Consequently, the decline in payment terms and expected further deterioration are cause for concern.”

“If payment terms continue to deteriorate in the months ahead firms may find themselves battling the cashflow pressures that impacted business growth and stability during the height of the credit crisis.”

As has been the case for more than three years, companies with more than 500 are the worst payers, with payment terms of 56.8 days, while medium-sized firms (50-199 employees) were the quickest to pay at 49.2 days.

At the other end of the market, smaller firms (one to five employees) saw an increase of 2.7 days to 53.2 days, while terms for firms with six to 19 employees increased by 2.1 days to 51.4 days.

The electricity and gas sector remain the slowest payers, while firms in NSW and the Australian Capital Territory face the longest way for invoices to be met.

Christian says entrepreneurs need to continue to work hard to chase down late payers.

“This will allow firms to free up funds for business investment and to pay down debt or rely less on borrowed funds. If executives take their eye off the ball and allow their vigilant focus to waver, the economic recovery will falter.”