Payment terms fall but two-thirds of businesses still take more than 30 days to pay

Two thirds of businesses are now taking longer than 30 days to pay company accounts, according to the latest data released by credit ratings agency Dun & Bradstreet.

The result comes as many businesses are continuing to struggle against subdued consumer confidence, especially in the retail sector, and face the prospect of another interest rate rise in the next six months.

The new data reveals the number of payments more than 90 days overdue jumped 20% in the June quarter compared with 2010, while the number of businesses paying trade accounts between 61-90 days late has increased by 36%.

However, the overall average time for payments dropped by 2.5 days.

Payment terms for smaller businesses have increased by two days compared with the June quarter, although bigger businesses are still the slowest to pay. And although D&B says payment terms have fallen by three days during the June quarter, they still remain “at concerning levels”.

“Individual businesses are the unsung bankers of our economy. Business to business lending through the extension of trade credit amounts to billions of dollars a year,” says D&B chief executive Christine Christian.

“The rate at which these micro-loans are being paid back is a key indicator of the health of Australian businesses.”

Both the public and private sectors saw a decline in payment terms over the past 12 months, the data found, at 55.3 and 53.4 days respectively.

The best performing industries were the transportation, wholesale and services firms, averaging between 50-52 days to pay bills, while the electric, gas and sanitary services industries are at 56.2 days, with mining at 56.4 days and communications at 56.5 days. The forestry industry is highest at 62.6 days.

The data also found the forestry industry has experienced the highest deterioration in payment terms over the last year, taking an average seven days longer to pay bills.

“Fishing firms came close to this with payment terms deteriorating by four days over the last year and the mining sector taking three days longer to pay bills during the same period.”

Some sectors, such as the services and financial, insurance and real estate sectors, reduced payment terms.

Firms with 500 or more employees sat three days above the national average of 56.3, while companies with between 50-199 employees paid the fastest at 49.2 days. But Christian pointed out smaller firms with between one and five employees say the worst deterioration in payment terms in the past year and are now the second slowest to pay.

“Businesses have a tendency to become lazy with following up overdue accounts during periods of high cashflow, and it is only when the company begins to experience distress as a result that attention begins to be paid.”