Credit crisis and slowing economy impact business payment behaviours
29 January 2009
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Australian firms are under pressure as a blow-out in trade payment days hits business cashflow. Businesses averaged 56.5 days to settle accounts in the December 2008 quarter, the highest level recorded since 2001 and an increase of four days over a 12 month period, according to Dun & Bradstreet's (D&B's) Quarterly Trade Payments Analysis. Big businesses (companies employing 500+ staff) have been the slowest to pay for more than nine consecutive quarters. An increase of 2.2 days on the September 2008 quarter and 4.3 days on the December 2007 quarter saw big businesses averaging more than double the standard term (61.5 days) to settle accounts in the December 2008 quarter. Big business also accounted for the biggest year-on-year jump in terms at 4.3 days and was the only group to take more than 60 days to pay its bills. Firms with 200-499 employees had the biggest quarter-on-quarter increase, up 2.5 days to 58.6 days. Meanwhile firms with 6-19 employees have maintained the quickest paying spot (53.7 days) despite a one day increase in terms since the previous quarter and a 3.4 day increase since the same time last year. According to Christine Christian, D&B's CEO, the deterioration in payment terms that occurred during 2008 reflects the slowdown in the local economy and the challenges that Australian firms were facing as a result of the global economic correction. "Business payment terms have been on a continual trend upwards since the September quarter of 2007 - the time that the credit crisis began to unfold," said Ms Christian. "One of the first impacts of the crisis was a tightening of credit. As a consequence we began to see business cashflow impacted as borrowing was no longer an easy option to cover shortfalls. "As the crisis deepened and its impacts spread, businesses had both global and local issues to contend with. This situation heightened the impact of lagging trade payments and accordingly the rise in debtor days has continued." Public | Private Public companies have been slower to pay than their private counterparts for two consecutive quarters however the gap between the two has narrowed. An improvement of 2.4 days on the previous quarter had public companies averaging 56.6 days to settle accounts in the December quarter while an increase of 3.2 days had private companies averaging 58.4 days to settle accounts. |
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Industry The Electric, Gas & Sanitary Services sector has increased terms by more than a week to bump the Finance, Insurance & Real Estate sector out of the slowest paying spot. Averaging 63.5 days to settle accounts in the December 2008 quarter, Electric, Gas & Sanitary Services was the only sector to take longer than 60 days to pay its bills. The Agriculture sector has been the quickest to pay for four consecutive quarters however it did increase terms by 1.7 days on the September 2008 quarter and four days on the December quarter of 2007. The sector averaged 51.3 days to settle accounts in the December quarter. State Victorian businesses were the slowest to pay in the December quarter, averaging 58.3 days. Firms based in New South Wales and the Australian Capital Territory followed closely behind, both averaging 58.0 days to settle accounts. All three states increased terms as compared to the September 2008 quarter and the December quarter of 2007. Despite an increase of 1.8 days quarter-on-quarter and 1.9 days year-on-year, firms based in Western Australia were the quickest to pay. They averaged 53.2 days to settle accounts in the December 2008 quarter. Victoria accounted for the biggest year-on-year increase in payment terms, rising 4.9 days while the Northern Territory accounted for the biggest quarter-on-quarter increase, rising 1.8 days to 54.4 days. |
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"Despite the significant impact that trade payment days have on business cashflow they have not traditionally been seen as an important indicator of the financial health of the economy," said Ms Christian. "A sharp rise in terms or a continual increase such as we saw throughout 2008 should be viewed as an early indicator of trouble. It could lead to an increase in bad debts or be the trigger that pushes a business into negative financial territory. Executives should use this information to keep a check on the financial health of their customers and guard against potential cashflow issues." Payment problems are becoming a significant issue worldwide as the credit crisis impacts the cashflow of companies around the globe. Within the region Australia is the fifth worst payer behind India, Malaysia, Indonesia and Sri Lanka. Australia paid 31.0% of its accounts at 30 days or more past terms in Q3 2008. At a global level, 33 countries - including seven in the Asia-Pacific region - pay in excess of 30% of their bills at thirty days or more past terms. "Payment terms are increasingly becoming an issue across the globe as businesses worldwide feel the impacts of the global credit crisis," said Ms Christian. "For Australian firms that trade internationally, paying attention to your customers' behaviours is particularly important. Being alert to early warning signs, such as a slowdown in payments, allows you to act quickly to protect your business from cashflow troubles and bad debts." |
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For further information please contact:
Danielle Woods
About D&BD&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. |
