From bad to worse

Gee, yesterday was fun. I spent half the morning at a creditor’s meeting and then came back to the office and had to deal with another bad debt.

The continuing credit crisis is taking its toll, with an increasing number of companies either falling over or being very slow to pay their bills, which is resulting in the domino affect as this snakes down the line.

It’s strange isn’t it? The polls are showing that confidence is increasing, with one Newspoll out today showing that the proportion of people who believe their standard of living will get better or stay the same in the next six months has lifted in the past six months and is back to the level before the full onset of the global financial crisis.

Yet despite the positive signs, the last six months of a downturn are often the worst for business owners, mainly due to poor cash flow.

Dun & Bradstreet shows the average time it takes companies to pay a bill is now 57.6 days and they expect this to rise further. The debt collection agency has had a rise of 20% in the number of debts being referred to their debt collection service in this calendar year and they also expect this to rise in the short term.

And small businesses can expect that large businesses will pay their bills even later as this year progresses. It is not just less cash running through the economy that is the problem – paying bills late becomes a habit.

Many companies have started to pay their bills later in order to conserve cash. Even when the economy starts to improve, D&B’s David Christianson says, companies stick to the newly established habit of paying late. So, cash stays a problem long after it should.

The only way to force companies to change their late paying habits is to make it more uncomfortable for them if they don’t change. This means sending out invoices as soon as they are due and following up when you say you will.

So Happy New Financial Year! Good riddance to last year and may your cash flow well into this one.