D&B: Business facing cash crunch

Fresh from Dun and Bradstreet:

Australian businesses have identified cashflow as the issue most likely to impact their operations in the next three months, while new analysis of invoice payments reveals that payment times have slowed to their lowest rate in three years.

According to Dun & Bradstreet’s Trade Payments Analysis, business-to-business payments were made in an average of 56 days during Q1 2014, three days slower than in the previous quarter and two days slower than a year earlier, in a sign that business finances may be under strain.

While first quarter payment times typically slow due to a lagging impact from reduced summer holiday trading, the Q1 2014 slowdown is the most pronounced since 2011. These findings follow D&B’s latest Business Expectations Survey which found that a quarter of businesses (26 per cent) consider cashflow the issue most likely to influence their operations, ahead of wages, interest rates, fuel prices, access to credit, and the level of the dollar.

According to Adam Siddique, Head of Group Development–Dun & Bradstreet, the slow payment cycle will have a negative knock-on effect for the business sector.

“The steep rise in the number of days taken to settle accounts is an unwelcome development given some other more positive readings we’ve been seeing in the economy,” Mr Siddique said.

“While businesses are upbeat about increasing their sales, these latest findings suggest they are experiencing difficulty managing their finances and paying their expenses on time.

“When bills are paid late it interrupts the cashflow that businesses need to cover their own operating costs, which in turn delays how quickly they can pay their suppliers – and so the cycle continues,” he added.

D&B has found that trade suppliers are the most vulnerable to late or missed payments. If unable to pay all of their expenses on time, 48 per cent of businesses surveyed would opt not to pay their trade suppliers, ahead of their credit cards (15 per cent), phone bills (nine per cent), utilities (nine per cent) rent/mortgages (seven per cent), internet (six per cent) and bank loans (six per cent).

In addition, D&B has found that one-in-three (34 per cent) businesses had a supplier or customer last year which became insolvent or was otherwise unable to pay them.

While all of the industries analysed for payment performance have been averaging more than 50 days to pay their accounts, at 59.4 days the forestry sector has been the slowest. The mining and retail sectors were the next worst performing in Q1 2014, paying their invoices in an average of 58 days.

At the other end of the scale, businesses in the fishing (51.4 days), transportation (52.5 days), and services (52.5 days) sectors have been the fastest to pay their invoices.

Across sectors, the nation’s largest companies have remained the slowest payers. Those businesses employing more than 500 staff have taken an average of 57.8 days to settle their accounts, a day slower than last year, and two days longer than the national average. Despite their size, the biggest businesses are taking approximately four days longer than the smallest, to pay their bills.

Businesses with between 50 and 199 employees were the fastest to make their payments during the first quarter of the year, averaging 49.4 days.

“The slowing in payment times is another piece of news that suggests the economy has lost some momentum in recent times after a strong end to 2013 and a positive start for 2014,” said Stephen Koukoulas, Economics Advisor for Dun & Bradstreet.

“The tendency for firms to take longer to pay their bills is consistent with possible pressures on their cashflow, which could be the result of a softening in profit growth.

“For the RBA, the run of softer news on the economy means that any chance for interest rate increases is very limited and unless there is a clear improvement in the economy in the next quarter or two, there is some risk interest rates could be cut,” Mr Koukoulas added.