Cash flow crunch as businesses hold back payment for 53 days

Cash flow is still a stumbling block for Australian businesses, with the time frames at which they are paying each other going backwards, new research shows.

Dun & Bradstreet’s latest Trade Payments Analysis survey found in the last quarter of 2013, only 46% of invoices were paid within a standard 30 day period.

The average time to pay invoices was 53 days, one day slower than the same period last year.

Dun & Bradstreet reported this slow rate occurred despite record-low borrowing costs, a lower exchange rate and healthy consumer spending during the Christmas quarter.

It expects payment times to remain slow for the first quarter of 2014, as a result of a lagging impact from reduced holiday trading hours.

The slow payments are reflected in business owner sentiment, with D&B research finding 32% of businesses consider cash flow to be the issue that influences their operations the most.

The current level of the Australian dollar was listed as the biggest issue for 16% of businesses, followed by interest rates at 11%, fuel prices at 7% and access to credit at 6%.  

However, while businesses were battling with receiving late payments, 49% confessed they would miss payments to suppliers if they did not have enough money at the time.

They would also overlook business credit card payments (17%) and business overdrafts (14%) if money was tight.

Dun & Bradstreet chief executive Gareth Jones says the lack of on-time payments is detrimental to the ability of businesses to manage cash flow and expand their operations.

“Trade credit is a vital component of a healthy economy, providing small businesses in particular with the means to run their operations,” he says.

“However, slow invoice payments limit this contribution, placing a drag on business sector growth at a time when we are otherwise seeing improvements in confidence levels.”

“With payment times typically slowing during the first quarter of a year, we unfortunately expect to see cash flow remain an issue in 2014.”

The slowest industries to pay their accounts during the quarter were forestry and mining, taking 58 days and 56 days respectively.

The fastest paying industries were fishing at 49 days, followed by agriculture, transportation, and services businesses at an average of 50 days. 

Big business were the slowest to pay, with companies employing more than 500 people taking an average of 56 days to settle debt – three days longer than the national average.

Companies with between 50 and 199 employees were the fastest to pay, taking an average of 47 days.

The economics adviser to Dun & Bradstreet, Stephen Koukoulas, told SmartCompany the data is best viewed in the context of the Australian economy’s moderate pace of growth.

“Payment is a seasonal pattern, it is often slower in the fourth quarter due to the Christmas holidays etc. and people tend to pay their bills in the March quarter,” he says.

Koukoulas says businesses paying credit cards more quickly than their suppliers shows they are focusing on where they will be penalised the hardest.

“If you pay a supplier late you get a letter… if you pay credit late you are immediately slugged with a fee,” he says.

In the next quarter he expects payments to pick up, buoyed by the reasonable state of the economy in the early part of this year.

“If the economy continues to improve in-line with the pick-up evident in the Dun & Bradstreet’s surveys of business expectations, then trade payment times can be expected to edge lower.”