Payment terms finally fall, but cashflow squeeze may not be over

Payment terms have fallen for the first time in almost two years in a sign that the cashflow crisis that has rocked Australian SMEs over the last 12 months might finally be easing.

According to data from credit ratings firm Dun & Bradstreet, Australia’s average payment terms have fallen 2.6 day to 54.8 days. While this remains well above the standard 30 day terms that most business operate on (or at least hope to operate on) it does represent a marked improvement.

Big businesses continue to be the worst payers (having held this position for almost three years) although their average payment terms did fall 2.6 days to 59.5 days.

Companies with between six and 19 employees continue to be the quickest to pay, with their average payment terms falling 2.4 days to 51.5 days.

The electric, gas and sanitary services sector was the slowest to pay in the June quarter at 60.3 days, while the agriculture and fishing sectors were quickest to pay.

But while D&B’s chief executive Christine Christian has welcomed the improvement in payment terms, she remains concerned that another blow-out could be just around the corner.

She says that since the end of April, D&B has ranked 25,000 Australian companies as being at a high-risk of paying their accounts “in a severely delinquent manner” which indicates that many companies are still feeling the cashflow squeeze.

“Consequently, we believe pressure on payment terms and cashflow will persist at least through until the end of 2009. The flow-on effect of this trend is a reduced focus on business development and investment, and this means Australia’s economic growth will continue to come under pressure.”

Another question raised by Christian is whether businesses will take a hit when the impact of the Government’s various stimulus measures runs out.

“The latest trade payments data shows an improvement in payment terms, which will undoubtedly assist business cashflow. However, to reverse the negative impact of long-term lagging payments and provide a significant boost to business funds will require a sustained period of significant and continual improvement,” Christian says.