Business crunched as average payment terms remain at 52 days

Businesses have been warned to get their cashflow organised and pursue alternative funding arrangements, after new research shows companies are now taking an average of 52 days to pay their bills.

The figures, from Dun & Bradstreet, show 62% of accounts surveyed by the company were settled late, and more than 68% of executives said they expect cashflow will be an issue for their business in the coming months.

The Trade Payments Analysis shows the national average for payment times is now flat compared to the same time last year. Although the figure has declined since the height of the financial crisis, it has not fallen below 52 days since the third quarter of 2009.

“The relative consolidation at this payment range is reflective of other indicators showing the economy in a period of subdued growth,” D&B said in the report.

“It also suggests the nation’s businesses will continue to struggle with cashflow at a time when they are already facing challenging trading conditions and higher input costs.”

The 52-day term sits in contrast to New Zealand, where average payment terms were just 40 days during the final quarter of 2012.

Chris Charleson, head of business finance sales for Bendigo Bank, told SmartCompany the financial crisis has kicked business into gear – more SMEs are hounding their clients for payment more often.

Charleson says more businesses should be taking that approach.

“They’re actually being pre-emptive, and much more so than a couple of years ago. A lot of them are trying to forecast the cash demands and needs, so they’re simply trying to be proactive.”

Charleson says the bank has seen a spike in labor hire business demand. “They’re more of a service solution, and they want to provide a bundled solution to help businesses with cashflow and labor resources.”

“The ongoing and sustained debt terms, as seen in Dun & Bradstreet’s research, is a big pressure that is driving business behaviour.”

In a statement, D&B chief executive Gareth Jones said late payments have a negative effect on the entire economy.

“Trade credit is an essential form of non-bank finance, and when bills are paid late it withholds essential operating money that businesses need day-to-day, but also to invest and grow,” he said.

“If businesses are waiting 52 days to be paid it impacts their ability to pay their own bills, creating an unhealthy cash flow cycle in the economy that removes millions of dollars from the system.

Cashflow is one of the biggest problems for small businesses, and is one of the most common reasons new businesses fail. Experts are constantly telling SMEs to crack down on outstanding payments and operate a sustainable cashflow structure.

Dun & Bradstreet head of corporate affairs Danielle Woods also said while that 52-days figure changes from season to season, the company doesn’t expect it to change much in the future.

Charleson says the data should spur business into action.

“This impacts all sectors of the business community,” he says.