Slow-payers put strain on SMEs

Clint Baker of Leatherworks says his clients are living hand to mouth. Photo / Doug Sherring

Despite tentative signs of economic recovery, business owners say being paid is one of the greatest challenges they face.

Small to medium enterprises (SMEs) report average payment periods well outside the standard 30 days. Research backs up this anecdotal evidence.

The latest business payments figures from credit bureau Dun and Bradstreet show that the time businesses are taking to settle with one another increased in the December quarter.

Kiwi firms are now taking 43.9 days to pay, up from 43.4 days in the previous quarter and 43.5 days at the same time last year.

In addition, an increasing number of firms were delaying their bill payments, said the bureau's New Zealand general manager, John Scott.

"This is a worrying trend as it can draw more businesses into the late payment cycle.

"For small firms in particular, this type of delay could push a business into severe financial stress."

Dun and Bradstreet has predicted that cashflow will remain under pressure this year.

At a Bank of New Zealand networking event for local businesses in Penrose this week, the talk was of late payments.

Clint Baker, managing director of Onehunga bespoke leather goods manufacturer Leatherworks, said he had noticed it over the past 18 months. "If we're all living hand-to-mouth this will take quite a while to resolve itself."

Slow-paying clients told him what they were probably telling everyone else - that they would do the best they could.

"Half of my customers are retailers. They have been in sales since well before Christmas, they're trying to generate cashflow. But the IRD, employees, the owners of the buildings all want money constantly. Suppliers are the last in the queue."

Normally he would go to his bank to tide him over if necessary but the banks were "not that excited" about lending at present.

Scott White, principal of local property, tax and financial advisory service Tax Smart, said he was currently taking three times more clients to debt collection agencies than he was this time last year: "It's getting tighter out there."

Panmure law firm DG Law saw clients coming to it for help too late, partner David Graham said.

They hadn't been paid, then heard about a liquidator or receiver being appointed to the debtor company. But there would be dozens of other creditors.

"The lesson that the clients who have come to see us have hopefully now learned is if someone hasn't paid you within 60 days, the chances of getting paid might be quite slim.

"If somebody hasn't paid you within 60 days, chase it like crazy."

As things got tough, more owners were simply liquidating and starting up again or walking away, he said.

Larger businesses tended to be slow payers because they knew suppliers depended on them.

The Dun and Bradstreet research also backs that.

Firms with between 200 and 499 employees and those with more than 500 staff members were consistently slower payers than small firms, the bureau said. Those with more than 500 employees took 46.7 days to pay in the December quarter.

Firms with between six and 19 staff paid the quickest at 41.9 days and were the only group to improve payment times compared with the September quarter, it said.

In the Auckland industrial area of Penrose, where many SMEs have their premises, BNZ store manager Simon Devoy said there had been positive signs in the last three or four months.

"Those people who have survived are the ones who have looked after the customer and who are doing things slightly differently."