Small firms waver on payment terms: D&B

Small businesses recorded a deterioration in the time they take to pay invoices in the past 12 months, a new Dun & Bradstreet report reveals.

Dun & Bradstreet’s latest Trade Payment Analysis examines business-to-business payment terms for the June quarter.

While business-to-business payment times improved marginally during the quarter, two-thirds of businesses took longer than the standard 30-day period to pay company accounts.

According to the report, national payment terms reached 53.4 days during the quarter, while the number of severely delinquent payments – which are at least 90 days overdue – jumped almost 20% compared with the June 2010 quarter.

Meanwhile, the number of businesses paying trade accounts between 61 and 90 days late has increased by 36% since last year.

The report reveals smaller firms have struggled the most over the last 12 months, with payment terms blowing out by an average of two days compared with the June 2010 quarter.

According to Dun & Bradstreet chief executive Christine Christian, the continually high rate of delinquency among businesses is concerning given the importance of trade credit.

“Individual businesses are the unsung bankers of our economy. Business-to-business lending through the extension of trade credit amounts to billions of dollars a year,” she says.

“The rate at which these micro loans are being paid back is a key indicator of the health of Australian businesses.”

According to the report, transportation, wholesale and services firms were the best performers in the June quarter, averaging between 50 and 52 days to pay their bills.

This compares with electric, gas and sanitary services at 56.2 days, mining at 56.4 days, communications at 56.5 days and forestry at 62.6 days.

With regard to the states, Victorian and West Australian businesses were the best players during the June quarter, with Victorians taking 52.1 days and those in the west 52.3 days to settle accounts.

Firms in the ACT and NSW improved payment terms the most during the June quarter, reducing terms by four and three days respectively.

Conversely, payment terms in Tasmania deteriorated more than the rest of the country, with the state’s firms taking three days longer to pay their bills than the same time last year.

Firms with 50 to 199 employees were Australia’s best payers, with an average payment term of 49.2 days, while smaller enterprises are showing increasing signs of distress.

Businesses with between one and five employees recorded the worst deterioration in payment terms in the past 12 months, becoming the second slowest payers.

These firms have jumped from an average 51.3-day term in the June 2010 quarter to 53.2 days in the June 2011 quarter.

Christian says the improvement in payment terms since the March quarter, particularly within key industries such as retail and service-based businesses, can actually indicate financial distress.

“Businesses have a tendency to become lazy with following up overdue accounts during periods of high cashflow, and it is only when the company begins to experience distress as a result that attention begins to be paid,” she says.

“When we see struggling sectors such as services and retail begin to improve payment terms, it is often because businesses in troubled areas of the economy understand the importance of maintaining cashflows and make an effort to keep outstanding accounts under control.”