Late payers 'growing drain on cashflow'

Cash flow is expected to remain a major challenge for New Zealand businesses in the year ahead, according to research that shows the number of firms with outstanding debt increased during the final three months of 2010.

Credit reporting agency Dun & Bradstreet canvassed its database to reveal the number of Kiwi firms failing to pay their trade credit accounts during the December quarter was 4 per cent higher than in the same period of the previous year.

And businesses are also taking longer to settle their bills. New Zealand firms took an average of 43.9 days to settle accounts in the final three months of last year - two weeks over the standard 30-day payment term.

"A 4 per cent increase in the number of entities paying their accounts late has the potential to inflict cash flow difficulties on a large number of firms," said Dun & Bradstreet New Zealand managing director John Scott.

"This is a worrying trend as it can draw more and more businesses into the late payment cycle, making it increasingly difficult for firms to escape the pressures associated with slow-paying customers.

"For small firms in particular this type of delay in receiving payment for products or services could push a business into severe financial distress."

Fourteen sectors were examined in the research, with the biggest deterioration in payment times coming from the communications industry, which added 2.3 days quarter-on-quarter and 4.7 days year-on-year to the time its businesses took to settle their accounts.

The slowest paying sector was electric, gas and sanitary services, which took an average of 50.4 days to pay.

The agricultural sector was the swiftest to settle its accounts with an average of 39.9 days. Federated Farmers Auckland president Phil York said it helped that the agricultural sector was quite interrelated.

"We're quite close to our suppliers so we do settle things quite quickly," York said.

But Peter Sherwin, chairman of Grant Thornton's Wellington office, said even the average time the agricultural industry was taking to settle its bills was too slow.

He said cash flow was an issue for New Zealand businesses already suffering from the impact of the global downturn. "This time last year we had some expectation that [2010] was going to be a year when things started to turn around, but things have pretty much flat-lined," Sherwin said.

He said firms that were reliant on a small number of high-value accounts were going to be more exposed to the current cash flow situation.

The Dun & Bradstreet research found bigger firms with more than 500 staff were the slowest to pay their accounts during the December quarter, taking an average of 46.7 days.

Companies needed to be vigilant when communicating with their customers about the settlement of bills, Sherwin said. It was, however, a fine line for businesses to walk without upsetting their accounts.

PAYING THE BILLS

Average account settlement time by region (3 months to December)

* North Island: 44.2 days
* South Island: 42.3 days
* Auckland: 45.2 days
* Wellington: 44.7 days
* Christchurch: 43.1 days