Longer payment terms for New Zealand businesses

MEDIA RELEASE 1 27 July 2011

Longer payment terms for New Zealand businesses

More than half of Kiwi businesses delinquent with payments

More than half of New Zealand businesses were delinquent in making payments to each other during the three months ending June 2011, with an average payment term of 45.8 days. This was nearly two days longer than 12 months ago and is indicative of the cash flow pressures many Kiwi businesses are facing in recent times.

Although businesses took marginally less time to pay their bills in the June quarter than the March quarter, payment terms have overall trended upwards since the 42-day lows in last year’s September quarter.

Average payment days by quarter

The latest Dun & Bradstreet business-to-business Trade Payment Analysis for the June quarter 2011 reveals that half of the firms surveyed were anywhere between one to 30 days late in paying their bills, seven percentage points more than the firms that made on-time payments.

The number of late payers also jumped by six percentage points in the last 12 months, signalling increased financial distress stemming from a shaky and recovering New Zealand economy. John Scott, General Manager of Dun & Bradstreet New Zealand, said that these findings reflected the impact of external events on the business sector. “Natural disasters as well as the after-effects of the global financial crisis have strained the finances of many New Zealand firms, made worse by the low level of awareness of these firms on the repercussions of not paying on time.”

Industry While most companies struggled to pay their bills on time, the communications sector was the most affected with average payment terms of 54 days, eight days longer than the national average and well over the standard 30-day invoicing period. The communications sector took 4.4 more days to pay their bills than it did 12 months ago, a sharp contrast from an impro.vement in timely payments in the fishing, mining and the electric, gas and sanitary services industries.

Most firms in the public administration sector were one to 30 days late with payments, and took a significant amount of time to make payments at 50 days- this was nearly three days longer than in the same quarter in 2010.

The fastest payers were businesses in the forestry industry that took 40 days to pay their bills and the mining industry at 41.8 days. This was followed by the finance, insurance and real estate sector, which took 43.6 days to pay their bills.

The service and retail trade sectors were the most prompt with their payments, although just as many of these businesses were one to 30 days late with their payments. Out of the 43 percent of businesses that made on-time payments, one third of them were in the service industry. Out of 50 percent businesses that were one to 30 days late with payments, another third were also in the service industry. In addition, businesses that were more than 60 days late were predominantly operating in the service and retail trade industries.

Size While businesses of all sizes took longer to pay their bills as compared to the same quarter last year, the data found that larger firms were amongst the worst payers. Companies with 500 or more staff had an average payment term of 51 days, up 5.2 days in the past year. For the past two years, firms with more than 500 employees have generally taken longer to pay their bills, jumping from 45 days in July 2009 to the 51 days in the June quarter 2011.

On the other hand, firms with one to five employees took 45 days to make payments and firms with six to 19 employees took even less- 43.6 days. Mid-sized firms hiring 20 to 49 staff members averaged 44 days to pay their bills.

Companies based in the South Island were overall better payers, with an average payment term of 46 days in the June quarter 2011, although this was a four day increase up from the same quarter last year. Businesses in the North Island took 46.4 days to pay their bills, up two days in the past year.

All three major cities in New Zealand experienced deteriorating payment terms during the June quarter 2011. Christchurch businesses took the longest to pay their bills at 48 days- two days longer than the national average- while Auckland companies followed closely behind at 47.7 days. Wellington firms had average payment terms of 47.1 days. The average payment terms of Christchurch companies rose by five days in the past 12 months.

According to Mr Scott, Dun & Bradstreet’s data provides a key indicator of the difficulties these businesses are facing after a series of natural disasters in the Christchurch area. “As the recent earthquakes caused significant disruptions to commercial and economic activity, it is inevitable that businesses in the Christchurch area are struggling to pay their bills on time. Making prompt payments have simply taken a backseat to more urgent priorities such as rebuilding, insurance claims, and hiring additional staff.”

Public | Private The private sector were the fastest payers at 43.7 days, down one day in the past 12 months while the average payment terms of public companies stood at 47 days, up four days in the past year. ends

© Scoop Media