28 August 2007
Call for protection from late paying businesses as credit squeeze hits
Media Release
Australia's main political parties are being urged to embrace a policy that would reduce the impact of the emerging credit squeeze and assist business, particularly small and medium sized enterprises, in their efforts to be paid on time by their business customers.
Dun & Bradstreet - Australia's leading receivables management, credit reporting and business intelligence company - has called on both the Coalition and the Labor Party to commit to introducing a Late Payments Act if they form Government following this year's election.
The legislation would allow businesses to legally charge interest on money owed to them by their business customers, reducing the impact of the tightening credit market on business operations.
The latest Dun & Bradstreet business-to-business trade payments data shows that companies are taking on average 52.5 days to pay each other, nearly double standard payment terms.
While businesses across all industries and of all sizes have fallen behind in their payment patterns there are some differences. Based on the June quarter:
- businesses with 6 to 19 employees were the best payers at 51.05 days
- big businesses (defined as having more than 500 employees) were the worst payers at 57.37 days
- when big business is excluded, average payment times drop to 51.7 days
- the Agriculture industry is the fastest payer and the Construction industry the slowest
- Tasmania is the best performing state with payment patterns under 50 days while NSW is the worst performing state at nearly 54.5 days.
While it is expected that a Late Payments Act would bring the greatest benefit to small and medium sized enterprises who often lack the market power to force payment, there is a need for business-to-business payments to be improved across all industries and all businesses.
In an environment where credit availability is tightening and its cost is rising, access to cash has become increasingly important and the impact of late payments on cash flow can be devastating.
Dun & Bradstreet CEO Christine Christian believes the adoption of a Late Payments policy by the major political parties would improve cash flow and stability for business as the financial and credit markets enter what is expected to be an extended period of volatility.
"Across all industries, business-to-business trade payments are extremely high. This has a significant impact on cash flow which in turn is directly related to the long term viability of a business," said Ms Christian.
"Business is now being further buffeted by the credit squeeze and financial market volatility, which can place additional pressure on cash flow."
"Small business in particular is affected by late payment behaviour as they often lack the size and strength to force payment on time and weather this financial burden."
"A Late Payments Act would provide a legal avenue through which businesses could strengthen their position to be paid on time, having a significant impact on their cash flow statement. This is critically important at a time when cash is king."
Dun & Bradstreet analysis reveals that small companies accounted for more than three quarters of insolvencies in the June quarter. Businesses employing less than five staff or with 5-20 employees accounted for 36% and 42% of insolvencies respectively.
Over the next twelve months more than 7,500 businesses will go into liquidation or receivership and more than 4,000 will file for bankruptcy, according to Dun & Bradstreet trends data. Many of these will be small businesses that have failed to adequately manage cash flow.
"Cash flow is the lifeblood of business and poor cash flow is the primary reason any business, particularly small businesses, fail," said Ms Christian.
In the United Kingdom a Late Payments Act was first introduced in 1988 by the Thatcher Government, providing SMEs a statutory right to claim interest from other businesses for the late payment of commercial debt. This was amended in 2002 so that all businesses, irrespective of size, could claim interest.
Dun & Bradstreet believes that similar legislation should be introduced in Australia that would provide businesses with the right to:
- claim interest for late payment
- claim reasonable debt recovery costs; unless the supplier has acted unreasonably
- challenge contractual terms that do not provide a substantial remedy against late payment
- seek the support of their representative body to challenge contractual terms that are grossly unfair - e.g. small business could seek support from their industry body in negotiating payment terms.
Dun & Bradstreet has written to both the major political parties outlining their proposal and providing a detailed breakdown of business to business trade payment patterns over the last two years.
For further information, or to arrange an interview please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
+61 2 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.
