Payment Times Drop By One Week

Payment Times Drop By One Week

Three in five invoices are paid on time

New Zealand businesses have once again cut the time taken to pay their bills, bringing average payment times to a near-record low of 40.1 days in the December quarter of 2012, down by one week over the past 12 months.

Additionally, almost three in five invoices (58 per cent) were paid on time in the December quarter, up 11 per cent year-on-year, while the number of invoices paid more than one day late dropped by 28 per cent over the same period.

These findings are from Dun & Bradstreet’s (D&B) latest Trade Payments Analysis, which examines the millions of accounts receivable records contained on the D&B database. The analysis indicates that payment times have fallen 4.5 days from the 44.6 days recorded in the last quarter of 2011, representing the third consecutive quarter of reduced payment days.

Despite payment times remaining flat quarter-on-quarter, the December quarter result is almost on par with the historic lows of 39.7 days last seen in the June quarter of 2004.

Average payment days, 2011-2012

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According to D&B New Zealand’s General Manager, Lance Crooks, the improvement in business-to-business payments is a strong indicator that cash flow cycles are continuing to firm up.

“New Zealand firms are still exhibiting strong payments performance in the lead-up to Christmas, building on positive September quarter results. It’s evident that the improvement in the ability of businesses to manage their cash flow is part of a larger economic recovery picture, and not just a one-off occurrence.

“By making an effort to ensure that suppliers get paid on time and that more overdue invoices are being followed up on, a significant portion of businesses are contributing to an overall reduction in national payment days. This in turn has a knock-on effect on economic growth as businesses enjoy a return to more positive conditions.”

In line with this statement, D&B data is forecasting GDP growth of 2.3 per cent this year, up from the 1.8 per cent recorded in 2012.

This increase in growth supports official Treasury predictions of a pickup in 2013, as reconstruction from 2011’s Canterbury earthquakes gathers pace and interest rates are tipped to remain at the 2.5 per cent mark. Moreover, a strengthened housing market, rising commodity prices and increasing private consumption growth should also add to the economic recovery.

According to D&B’s Economic Advisor Stephen Koukoulas, the fall in payment times provides more evidence that the economy is slowly improving.

“It suggests that firms are increasingly cashed up and as a result, are not hesitating to pay their bills in a timelier manner. While some of the hard data on the New Zealand economy still remains problematic, the current low interest rate environment and signs of improving economic growth globally should result in positive domestic conditions during the course of 2013.”

Adding to the strengthened data is the performance of certain demographics, most notably Christchurch firms, those in the agriculture, mining and forestry sectors, and smaller businesses.

Christchurch firms were the quickest to pay their bills at 39.7 days, down by more than five days over the past 12 months. This is compared with 42 days for businesses in both Auckland and Wellington, also down by more than five days in the past year. Christchurch businesses have seen substantial progress made on post-earthquake reconstruction and the resultant lift in retail activity in the region. According to Statistics New Zealand, Christchurch retail trade rose for a second consecutive quarter in September 2012.

On the whole, South Island firms have also performed better than their North Island counterparts, averaging payment times of 38.9 days compared with 41.1 days in the North Island.

In terms of industry, agriculture businesses were the fastest payers at 36.6 days, down 3.8 days year-on-year; followed by mining firms at 36.8 days, down 4.4 days year-on-year. Forestry businesses also performed well and shaved payment times by just over a day over the past 12 months, to 38 days in the December quarter.

The worst payers were firms in the communications industry at 43.8 days, although they managed to cut payment times by 8.7 days year-on-year; and those in the construction industry at 42 days, down by a week year-on-year. The largest improvement over the past year came from the electric, gas and sanitary services sector, which reduced payment times by 12.9 days to 39.8 days.

Smaller businesses also paid their bills the fastest, with firms with six to 19 employees taking 39 days, representing a reduction of 3.7 days over the past 12 months. This is followed by firms with 20 to 49 employees, which cut payment times by four days year-on-year to 39.5 days.

Average payment times by business size, 2009-2012

Despite larger firms (500+ staff) averaging the longest payment times of 40.3 days, they showed the biggest improvement year-on-year, down by 9.1 days. Historically, large firms have taken substantially longer to pay their bills than their smaller-sized counterparts – in the March quarter of 2012, firms with 500+ staff took 5.5 days longer to settle accounts than those with 200-499 employees. This was the largest difference in payment days since 2006.

“The quite remarkable nine-day fall in the time it takes big businesses to pay their bills has second-round benefits for the whole economy. What this means is that businesses paying their bills quicker tend to see better cash flow, improved confidence and an increased ability to grow,” Mr Koukoulas says.

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