6 February 2008
Company growth squeezed by credit crunch & poor payment patterns
Media Release
The length of time Australian businesses take to pay each other is rising, placing additional pressure on company cash flows in an environment where access to credit has already tightened.
This finding is from the December 2007 quarter business-to-business trade payments analysis from Dun & Bradstreet, Australia's leading collections and credit reporting agency.
The Dun & Bradstreet data shows the average payment period across all industry sectors has risen to 52.6 days (more than 3.5 weeks past normal terms) after having eased in the middle of 2007 and is now returning to the highs of late 2006 and early 2007.
Dun & Bradstreet CEO Christine Christian believes that many Australian companies have taken their eye off the ball when it comes to collecting outstanding bills and are now denying themselves access to cash at a time when credit for growth is becoming more expensive and difficult to obtain.
"During the period of strong economic growth and easy access to cheap finance, businesses have let their focus on collections slip without too much impact," said Ms Christian.
"However Australian companies are now entering an environment where credit is more difficult and expensive to obtain. This means there will be a greater reliance on free cash flow to fund expansion. Yet many companies simply don't have the processes in place to maximise cash flow and have left themselves vulnerable at exactly the wrong time."
Public companies and big businesses (500+ employees) continue to be the worst offenders, averaging 58 and 57.7 days respectively to pay their debts in the December 2007 quarter.
The gap between public and private companies has jumped significantly to 5.5 days with public companies now taking 58 days and private companies 52.5 to pay their bills.
While big businesses have consistently been the worst payers, the latest data shows their payment terms are deteriorating at a faster pace than the rest of the business community. The gap between businesses with 500+ employees and those with 200-499 employees has jumped to 4.5 days and is above the long term gap trend of around three days.
Businesses with 6-19 employees continue to be the best payers when examining business size but they have seen a jump from 49.4 to 50.4 days.
The Electricity, Gas & Sanitary Services sector continues to be the worst paying industry at 58 days followed by the Mining industry at 56.6 days. Both have seen an increase of approximately two days in the time taken to pay their bills.
The Agricultural industry continues to lead the nation in performance patterns but has now been joined by the Fishing industry, both taking 47.3 days to pay their bills in the December 2007 quarter. However the Fishing industry is the only industry to see an improvement in payment patterns from the September 2007 quarter, down from 48 days.
The Communications industry saw the biggest jump quarter to quarter rising from 51.8 to 55.2 days.
State-based analysis reveals that the ACT has the country's worst payers at 54.7 days, an increase from the September 2007 quarter. New South Wales and Victoria followed at 53.9 and 53.4 days respectively.
Tasmania at 49.6 days maintained its position as the quickest paying state, although it has seen an increase of around two days.
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However there is some good news for Australian businesses supplying the Federal Government. While payment patterns from government departments and agencies around the country have also risen to over 50 days, the Federal Government has responded positively to a proposal from Dun & Bradstreet to enforce strict payments terms among federal departments and agencies Dun & Bradstreet's Global Risk Report shows that Australia is not alone in its payment problems but it is the fourth worst payer in the Asia-Pacific region. India is the worst paying nation with 55.2% of payments made at 30 days or more past terms in the September quarter of 2007. In Australia 42.3% of payments are made at 30 days or more past terms.
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According to Ms Christian, businesses need to ensure that they have a solid debt management policy in place.
"Debt management may seem dull but having strong collection processes in place is critically important when you find you are paying interest on money being used to cover shortfalls that shouldn't exist in the first place."
Australian Trade Payment Analysis.pdf (59KB)
For further information, or to arrange an interview please contact:
Danielle Woods
D&B PR Manager
+612 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
