NZ Payment Terms Shrink to Pre-GFC Levels

15 November 2011

NZ Payment Terms Shrink to Pre-GFC Levels

Payment terms improve by four days since 2008

New Zealand businesses took on average 44 days during the September quarter 2011 to pay their bills, representing an improvement of more than four days since the onset of the Global Financial Crisis.

According to Dun & Bradstreet's Trade Payments Analysis - which examines the ability of firms to pay their bills, and pay them on time - payment terms have improved by nearly two days since a spike at the beginning of the year following the devastating Christchurch earth quake.

According to Dun & Bradstreet New Zealand, General Manager, John Scott, payment terms are now on par with pre-crisis levels of 2007 and this can be credited to improved business confidence and activity driven by key events like the Rugby World Cup.

Average Quarterly Payment Terms

Despite this, more than half of New Zealand firms took longer than the standard 30-day payment period to pay their bills. Based on payment terms of 44 days, this means that businesses are taking two extra weeks to settle their accounts.

"Payment terms have never dipped below the 40 day mark and this paints a worrying picture for cashflow management, which will worsen if firms do not focus on the fundamentals like risk assessment and receivables management," Mr Scott said.

The D&B Trade Payments Analysis for the September 2011 quarter also found that:

• The forestry sector was the fastest to pay, with payment terms at 39 days. Conversely the communications sector and the electric, gas and sanitary services sectors were the slowest paying group at 50 days;

• Publicly-listed firms were slower to pay than their private counterparts at 49 days and 44 days respectively. Public firms, however, have seen payment terms deteriorate by four days over the past 12 months, while payment terms for private firms have lengthened by one day;

• Large firms of 500 or more employees were the slowest paying group, recording repayment times of 47 days. Businesses with 6-19 employees were the quickest to pay, averaging 42 days to settle their accounts; and

• Firms based in Christchurch took the longest to pay with average payment days at 46 days. Wellington businesses took 45 days to settle their accounts, making them the fastest-paying city.

Elements of New Zealand's strong commodity growth were also evident in the analysis with the mining (39 days) and forestry sectors (38.8 days) recording an improvement in payment terms of 2 days and 3.2 days respectively over the past 12 months.

In contrast, the finance, insurance & real estate and the services sectors experienced a significant deterioration, with a shift of two days and 1.3 days respectively over the same period. Nearly a quarter of service sector firms, 20 per cent of retail companies and 15 per cent of manufacturers were severely delinquent with payments more than 60 days overdue.

"The continuing rate of delinquency from Kiwi businesses is concerning given the importance of trade credit to the health of the nation's economy."

"Individual businesses are the unsung bankers of our economy. Business to business lending through the extension of trade credit amounts to billions of dollars a year and the rate at which these micro-loans are being paid back is a leading indicator of cash-flow performance and financial stability."

Detailed results for the Dun & Bradstreet Trade Payments Analysis are available here.

ENDS

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