New Zealand businesses struggle to pay bills

MEDIA RELEASE

Tuesday May 24, 2011

New Zealand businesses struggle to pay bills

Over half of all Kiwi businesses will fail to pay trade accounts on time

New Zealand businesses are struggling to control ever-expanding trade payment periods, with the number of on-time payments deteriorating over 13 per cent during the last twelve months. During the March quarter alone, almost 60 per cent of businesses were delinquent with account payments.

While fairing better than their Australian counterparts, New Zealand businesses are taking even longer to pay trade accounts than they were last year, according to the latest Dun & Bradstreet’s Trade Payments Analysis for the March quarter 2011. The study found business to business payment terms deteriorated by two days in the March quarter to reach an average of almost 46 days and a twelve month average of 44.5 days.

Although terms have undoubtedly improved since the peak of 51.9 days in 2001, they are nowhere near 2004 levels, when average payment terms fell to 40.9 days.

Dun & Bradstreet New Zealand general manager John Scott said these figures show a country battling to emerge not only from the global financial crisis but from a spate of natural disasters that have drastically affected the economy.

“What our data shows is not only the lingering effect of outside forces on our economy but the importance of account management and improved cash flows to the country’s economic recovery,” said Mr Scott.

Industry

Business to business trade payment data shows payment terms in the fishing sector deteriorated the most quarter on quarter to March 2011, taking on average an extra 4.2 days to pay accounts. While the Electric, Gas & Sanitary Services sector improved terms most dramatically, reducing average payment terms by 4.5 days. Sectors taking the longest to pay outstanding accounts during the March quarter were: Public administration at 51.1 days; Communications at 49.7; EG&S at 48.7; Manufacturing at 48.4 days; and Construction at 48.3.

The country’s best payers for the March quarter were: Mining at 41 days; Forestry at 41.6 days; Agriculture at 42.6 days; Finance, insurance and real estate at 43.3; and Transportation at 43.5 days.

Industries showing the most improvement in payment terms between December quarter 2010 and March quarter 2011 were: EG&S, communications, mining and forestry all averaging an improvement in payment terms of 2.6, 0.9, 0.5 and 0.4 days respectively.

While the sectors showing the most deterioration in payment terms between December quarter 2010 and March quarter 2011 were: Fishing at 5.2 days; Manufacturing at 3.5 days; Public administration at 2.8 days; and retail trade at 2.6 days.

John Scott says Dun & Bradstreet’s data creates a clear picture of the vital role timely account payment plays in the health of certain sectors.

“This data provides a lead to understanding the vitality of particular industries. The longer a sector takes to pay its accounts the more likely it is that sector is experiencing difficulties in a broader sense,” Mr Scott said.

“No business will survive in the long term without strong cash flows, no matter how solid the revenue. This is an element of business many industries are clearly neglecting, usually at their own peril.”

Public|private

Both sectors grew payment terms during the March quarter, however public companies more so than private with an average of 47.3 and 45.9 days respectively.

All three of New Zealand’s largest cities saw payment terms deteriorate to some degree during the March quarter of 2011.

Businesses in the South Island experienced trade payment term deterioration more than double those of the North Island at 2.2 days. However, North Island businesses took longer to pay bills overall, averaging a payment term of 45 days, three days longer than Southern counterparts.

Christchurch was the worst performer of New Zealand’s three primary business districts, extending the average length of account payments by 3 days, to peak at 47 days. This was compared to a twelve month low of 42 days just six months earlier. Auckland trade payment terms deteriorated by only one day but the city maintained the longest period overall, at 47.4 days.

Wellington was the standout for the period, managing to improve terms by 1.4 days quarter on quarter to March, 2011.

Size Businesses of all sizes saw payment terms deteriorate during the March quarter, although larger enterprises, those with 500 or more employees, were the least likely to pay invoices on time. However, smaller firms saw payment terms deteriorate most noticeably between the December and March quarters, taking a further 2.6 days to pay accounts compared to a deterioration of only 0.8 for bigger companies.

John Scott noted, “Shorter payment periods mean higher cash flow levels and in turn less reliance on outside financing to maintain viability. This is particularly important for small and medium sized businesses and this data shows that many local SMEs are increasingly struggling to pay their bills.”

While the Dun & Bradstreet data indicates a growing trend of tardiness towards trade accounts, overall only five per cent of New Zealand businesses paid accounts between 31-60 days late and the figure for those 60 days or more overdue was fractional. These figures are particularly significant when compared to neighbouring Australian businesses, where the level of severely overdue trade accounts has risen by 20 per cent and the average account takes almost two months to be paid. At 55.6 days, this is the worst B2B Australian account term since 2001.

About Trade Payments Analysis: Dun & Bradstreet's trade payments analysis utilises the accounts receivable records of New Zealand firms. The Dun & Bradstreet database contains millions of trade references, which are analysed and segmented by location, business size, structure and sector. The analysis is not based on survey data.

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