Business cashflow stat points to stalling economy

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New Zealand's economic recovery has suffered a setback, with a key indicator of cashflow among businesses stalling during the September quarter.

Businesses took an average 44.3 days to settle their trade accounts during the quarter, bringing payment terms back to year ago levels, according to research by credit agency Dun & Bradstreet.

That figure is about the same as was recorded during quarter two, prompting concern that stagnating payment terms could stall a recovery of the economy.

Business-to business payment data is a strong indicator of the cash position of firms because it reveals how current obligations are being paid, the agency said.

At the height of the economic crisis, businesses were taking an average 50.8 days to pay, against pre-crisis levels of 42 days.

Dun & Bradstreet's New Zealand general manager John Scott said businesses needed to look to their receivables to generate more cash for their business.

"Accounts receivable is typically the largest liquid asset on an organisation's books and mismanagement of this crucial asset has the potential to bring a business to its knees," he said.

"The latest data shows that we've returned to our position of 12 months ago, but we aren't yet back at pre-crisis levels," he said.

Firms in the North Island were slower to pay their accounts than those based in the south, with Auckland businesses taking the longest of the major cities to pay their bills (46.3 days) during the quarter.

Christchurch firms took just 43.3 days to pay, ahead of Wellington businesses which took 44.2 days to settle accounts.

Both cities improved their payment periods when compared to the previous quarter and the same time last year.

Scott said those businesses who made accounts receivable a key priority, could free up funds for business investment and pay down debt or rely less on borrowed funds.

"Cash flow and liquidity are vitally important during a period of economic recovery. As demand rises, firms need to be able to access funds to take on new staff, increase their inventories and invest in their business.

"Overcoming this challenge in an environment where cash remains difficult to access requires vigilant cash flow management."

Industries that improved the time it took to settle their accounts, included the agriculture sector which, at 40.5 days, was the quickest paying industry during the September quarter.

The electric, gas and sanitary services sector was the slowest pay group taking 50.4 days to settle accounts.

The communications sector was the only other industry that took longer than 50 days to settle its accounts during the quarter.

Smaller firms were quicker to pay their accounts their larger counterparts during September and those with 6 - 19 employees were the quickest, taking just 42.7 days to pay its bills.

Firms with more than 500 employees were the slowest to pay at 46.7 days.

- NZ HERALD ONLINE