The number of business-to-business debts that have been passed on to collection agencies has more than doubled over the past year.
The dollar value of each debt has also increased.
These details have emerged in data released today by leading credit reporting and collections firm, Dun & Bradstreet (D&B).
The findings come on the back of further research by D&B which reveals that almost 44,000 firms are now more likely to pay their trade accounts in a delinquent manner. Business-to-business payment days are close to three weeks above the standard term (48.4 days).
The research indicates that cash flow issues are prevalent in the economy and that the downturn is likely to be prolonged and difficult for many firms.
According to John Scott, D&B's General Manager, executives are beginning to realise the critical role that the accounts receivable function plays in improving the cash position of their business.
"The current economic climate has undoubtedly created challenges for business," said Scott. "As a consequence, cash flow and receivables management have come to the fore as executives have realised the critical role they play in ensuring the sustainability of business.
"A number of New Zealand firms are now acting on their arrears relatively quickly when previously they would have allowed them to accumulate for lengthy periods of time", he said.
"With the vast majority of business failures said to be the result of poor cash flow management, this is a smart move which could be the difference between a business continuing to operate profitably or falling into irreversible financial distress."
Delaying bill payments for as long as possible is a tactic that some businesses use to manage their cash flow. However, it can lead to an outstanding debt spiral that drags more and more firms into the late payment cycle.
According to Scott, New Zealand firms have recognised that a relaxed attitude towards collections is no longer sufficient. "In this new environment effective cash flow management is critical to ensuring the ongoing sustainability of business."
