23 December 2005
Tips to help businesses survive the festive season
The festive season is bringing hefty challenges for businesses trying to maintain vital cash flow, Dun & Bradstreet CEO Christine Christian said today.
Ms Christian says Australia's latest trade payments analysis showed the dramatic decline in business-to-business trade payments was continuing, adding pressure on business as they head into the New Year.
"The average trade payment is now 55 days, almost double the standard payment terms," Ms Christian said.
"Many businesses are still holding onto their cash for longer, putting pressure on businesses waiting for outstanding payments.
"The Christmas and New Year period are the most difficult times for many businesses, especially SMEs, chasing outstanding debts and balancing their cash flows. The large break many companies take over this period can delay payments and even force some companies to fail."
Ms Christian said the sharp increase in trade payment terms should be a timely warning to business to assess their payment terms and broader business practices.
"This is particularly important when we know that 90 per cent of businesses fail because of poor cash flow and debt management practices," Ms Christian said.
"Businesses must look closely at their cash flows and their receivables management. They must equally know the businesses they are dealing with.
"The cost of bad debt is more costly than most people think. Bad payers reduce the cash flow of a business, cash flow which could be used for growing the business.
"Bad payers make a business use internal resources, not only to recover overdue amounts but also by putting pressure on the need to make increased sales to make up for the loss."
Ms Christian said while it was necessary for business to extend credit, a business must have the confidence that a customer or business not only has the capacity to pay but the habit of paying on time.
"Acquiring an accurate insight into the customer's financial health and its debt paying behaviour is the key to staying ahead of the pack and limiting your own level of risk. The one place to go for this information is a credit reporting agency.
"Even small businesses can protect themselves with a quick and simple one-off online credit check.
"Smarter small business operators are increasingly using this simple credit checking and it there is no doubt it will certainly save many from failure."
The D&B Express website address is: www.dnb.com.au/express
Ms Christian said there were also 8 Golden Rules businesses could use to reduce credit risks:
- A business should define its credit parameters and adopt a credit policy that is clearly understood and embraced by all departments.
- Non-compliance with credit policy terms should be immediately communicated to the credit department.
- The business should establish clear credit terms with its customers at the start of every business relationship.
- The business should create a channel of communication between its front and back offices.
- The business should keep inventory and sales managers in constant contact with one another through management information systems that detect potential shortfalls of finished products, components or raw materials.
- The business should base its credit department's interaction with customers providing service. By emphasising customer service over the need to get paid, the collection approach can build upon and enhance relationships.
- The business should communicate regularly with customers to identify and resolve problems before credit terms expire and invoices become due.
- The business should not retreat from corrective action with persistently delinquent customers. The time to discontinue delivery is when previously supplied goods or services have not been paid for and the business has satisfied that what was supplied was what was ordered, was up to standard and was correctly invoiced.
For further information, or to arrange an interview please contact:
Danielle Woods
D&B PR Manager
(02) 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.
