Payment Terms Add Further Pressure for Commercial Debt in New Zealand: D&B

The pressure on New Zealand businesses continues with payment terms more than two weeks past the standard term (45.4 days) amidst an economy that is experiencing a significant economic downturn.

The latest figures in Dun & Bradstreet’s (D&B’s) quarterly trade payment analysis reveal that small businesses look to be feeling the most significant pressures and are hanging onto their cash for longer in an attempt to manage their cash flow. Businesses with up to five employees continue to be the slowest payers, hitting 50 days in the June 2008 quarter following an increase of 5.2 days on the corresponding period in 2007. The 6-19 employee category followed closely behind at 46.4 days, following a 2.3 day increase on the June 2007 quarter.

Despite maintaining payment periods which are two weeks past the standard term, big business continues to be the quickest to pay. Big business’ improvement of close to four days combined with the decline in payment periods for smaller companies moved the 500+ employee category from the slowest payer to the quickest.

According to John Scott, D&B’s General Manager, the impacts of the credit crunch and escalating prices are evident in the debt paying behaviours of New Zealand companies. “The pressures that have taken hold in the New Zealand economy over the past 12 months are showing through in an increasing number of economic indicators,” said Mr Scott.

“That payment periods are two weeks past due across the board and above 50 days for some groups is a clear sign that these pressures are being felt by New Zealand businesses. “The affect of the credit crunch on business’ ability to access funds can only be adding pressure to organisations trying to manage their cash flow at a time when the economy is experiencing a significant slowdown and businesses are paying each other significantly past terms.”

Examining the data by sector reveals that Electricity, Gas, And Sanitary Services is slowest to pay at 50.5 days, following an increase of 1.2 days on the same period last year. The Communication sector follows closely behind at 50.3 days however this was an improvement of close to 4 days on the June 2007 quarter.

The Forestry sector was the quickest to pay and is the only industry to pay its bills in less than 40 days. Meanwhile the Retail Trade industry saw the biggest increase in payment terms, up by more than three days on the June 2007 quarter to 45.7 days.

Public companies are slower to pay than their private counterparts however the difference between the two groups has narrowed. Public companies averaged 46.6 days to settle accounts in the June quarter while private companies took 45.4 days. An increase of 1.1 days for the Private sector saw the gap between the two groups narrow to 1.2 days.

Dun & Bradstreet’s Global Risk Report shows that payment problems are not unique to New Zealand – a number of countries around the world pay a significant percentage of payments at 30 days or more past terms. Twenty seven countries globally pay 30% or more of their bills at 30 days plus past terms. Meanwhile the 32.7% of payments that New Zealand pays significantly past terms make it the 7th worst payer in the Asia-Pacific region, on par with the Philippines. (see table below)

According to Mr. Scott poor payment behaviour has a strong inhibiting effect on the economy. “Delinquent payment cycles are very difficult to break as their impact forces more and more companies to hold onto their cash in an attempt to manage cash flow.

“Liquidity issues in an environment where borrowing continues to be difficult and costly can have dramatic effects on economic development as it often results in the postponement of business investment.”