Average payment terms blow out to 55.6 days as cashflow problems continue

Payment terms have blown out by 8% to 55.6 days in the March quarter, according to credit reporting agency Dun & Bradstreet, representing the worst result in just three years and the second-worst figure of the past decade as businesses struggle to manage their cashflow.

While the result has come during the usually tumultuous post-Christmas period, D&B director of corporate affairs Damian Karmelich says this result is worse than several other previous periods.

“I think what tends to happen is that when the economy is performing well at a macro-level, firms tend to take their eyes of things like credit management and cashflow,” he says.

“Last year when we were seeing a strong macro-economic outlook, business failures jumped 25%. They think that times are good, so they don’t have to worry about being paid exactly on time.”

The result is an increase from 51.5 days recorded in the December quarter of 2010.

Large firms with more than 500 employees were the slowest payers at 58.5 days, up from 55.6, while smaller businesses have recorded bad deterioration. Firms with between one and five employees saw their average payment days rise from 51.5 days to 56.6 days.

The number of businesses paying their bills at over 90+ days has increased by 20%, while those paying at over 60+ days rose by 41%.

The results show the Australian Capital Territory was the worst performing state, with payment terms at just over 59 days, representing a quarterly drop of five days. New South Wales was the slowest, larger state with a rate of 57.5 days, with Queensland at 56.9 days.

Tasmanian businesses were the fastest, averaging 54.7 days to pay their bills. In Western Australia, businesses paid in just over 55 days.

The slowest industry was the forestry at 64.2 days – an increase of eight days from the December quarter, while communications was the next slowest at 60 days.

The transportation industry was named as the fastest paying industry at 53 days, with agriculture next at 54 days.

And just as in previous statements, government authorities are still taking awhile to pay their bills, with D&B saying the public sector “is still one of the worst players” at 58 days. Government departments in New South Wales have been the slowest at 59 days.

While it may be instinctive to blame some of the poor performance on the natural disasters in Queensland, Karmelich says this isn’t the case and points out Queensland payment terms are better than those in the ACT or New South Wales.

“There’s no doubt state by state figures would have been impacted by that to an extent, but it doesn’t really explain away the poor performance.”

Largely, he says, the issue comes down to laziness. As businesses feel the macro economic situation of the country continues, they become less focused on getting paid within a reasonable amount of time.

Unfortunately, this means a lot of businesses will find themselves in trouble before it’s too late.

“We know that there is a lag between an economic slowdown and the impact of businesses as a whole, and we think we’re seeing that effect here as well.”

“We all know that business failures are linked to a lack of cash, not a lack of sales. This is why this data is so important.”

Karmelich says this is the time when businesses need to start being aggressive about their cashflow. He says companies, especially SMEs, need to start chasing down their unpaid bills if debtors aren’t being upfront.

“Businesses should remember they have fulfilled their part of the contract, and they are entitled to demand the customer fulfil their part of the bargain as well.”

“Businesses also need to understand that if it’s taking them this long to get paid, you really need to think about how they’re financing their business. If you’re using credit, that’s obviously costing you money. You need to put a bigger focus on your cashflow.”