Economy Up, Payment Times Down

Economy Up, Payment Times Down

Agriculture sector leads improved payment times

New Zealand’s encouraging economic performance this year is translating into a healthier cash flow cycle across the business community, with companies paying their bills faster over the past 12 months.

The latest analysis of business-to-business payments by credit bureau Dun & Bradstreet has shown that companies across New Zealand paid their invoices in an average of 41 days during the second quarter of the year, an improvement of one day from a year earlier and two days from the previous quarter.

D&B’s Trade Payments Analysis reveals the day-to-day benefit that businesses are receiving from the country’s low interest rates, strong trade relationships, stable risk environment and post-earthquake construction investment. With solid economic activity delivering healthier finances, businesses are in a stronger cash flow position and better able to regulate their expenses.

Businesses paying their bills in the shortest amount of time were those in the agriculture sector, which settled their accounts in 36 days, a one day improvement from the previous quarter. As New Zealand’s largest industry and exporter earner, this sector’s fast payment times provide an important flow-through effect for the rest of the business community.

The payment performance of New Zealand businesses is in contrast to those across the Tasman. D&B’s cash flow analysis of Australian businesses for the same period shows that payment times have slowed across the past 12 months, edging up to 54 days for Q2 2013.

According to General Manager of D&B New Zealand, Lance Crooks, the latest payment times analysis points to a resilience in the local economy and prudent financial management by local businesses.

“The caution and careful management that has been evident since the global financial crisis appears to have made businesses leaner, more efficient and better able to manage their cash flow,” said Mr Crooks.

“Payment times have steadily improved from the GFC in spite of the impacts of the long-running drought to our agricultural industry, recent earthquakes to our infrastructure, and the irregular performance of our trading partners.”

“Given those factors, the trend in payment efficiency is reason for optimism, and it appears we’re seeing some of this with an increase in job advertisements reported for July. Businesses will be hoping this leads to a consequent pick-up in consumer spending,” he added.

D&B’s analysis shows that payment times fell across the country. Business payments in the South Island dropped to 40 days in Q2, down from 42 days in the previous quarter, while North Island companies paid their bills in 42 days, down from 44 days.

In a particularly encouraging sign, large companies – those employing more than 500 people – reduced their payment times to 43 days, compared to 45 days in the previous quarter. Two years ago, these companies were taking 50 days to settle their accounts. Due to their size and influence in the economy, this improvement is providing an important cash flow boost to other businesses and consumers.

“The favourable news on the New Zealand economy continues to flow on to businesses, with a further fall in the time it takes for firms to pay their bills,” said Stephen Koukoulas, Economic Advisor to Dun & Bradstreet.

“A lift in growth, low inflation and low interest rates are all working together to see firms pay their bills relatively quickly.”

“There is a self-fulfilling cycle in the current run of more favourable economic news – as firms pay their bills more quickly, the cash flow improves for other firms and they are in a position to more quickly pay their bills.”

“There is one risk or potential downside from this news; that the RBNZ will be moving closer to the start of an interest rate hiking cycle, perhaps by early 2014,” he added.

ENDS

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