Business Payments Improve by Four Days

Wednesday, 18 April 2012

Business Payments Improve by Four Days

signs of a slow and steady recovery evident in the New Zealand economy

New Zealand businesses have dropped nearly four days off the time taken to settle their accounts over the past three years, paying their bills within 45 days during the March quarter 2012 and providing further evidence that the economy is on a slow and steady path to recovery.

Dun & Bradstreet’s (D&B) latest Trade Payments Analysis, which examines the millions of accounts receivable records contained on the D&B database to reveal the ability of firms to pay their bills on time, shows that businesses have improved payment times by more than one day over the past year, down from 45.9 days in the March quarter 2011. These figures align with the recent monetary policy statement from the Reserve Bank, which indicates that signs of recovery are evident in the domestic economy, despite fragile financial market sentiment and continued risks in the global outlook.

According to Dun & Bradstreet’s General Manager of Corporate Affairs, Danielle Woods, the fall in the number of late payments over the past year provides further evidence that economic conditions are on an upward trend.

“We are seeing an uptick in both business and consumer confidence as a result of reduced expectations of inflation and a resurgence in household spending, particularly as businesses recover from the global slowdown and recent natural disasters in the Canterbury region,” said Ms Woods.

“Household spending on durable goods rose by four per cent in the December quarter – this has positively impacted business operations during the March quarter and is having a knock-on effect on cash flow cycles.

“However, it is important to note that business payment times remain significantly above the standard 30-day repayment period.”

The improvement in payment days was evident across a number of industries, with the retail and manufacturing sectors in particular, recording some of the largest reductions over the past 12 months. Businesses in the retail sector averaged 42.3 days to pay their bills, down 3.2 days; while manufacturing firms averaged 45.4 days, down three days over the same period. Firms in the services sector also reduced the time taken to pay their bills, down by one day over the past 12 months to 44.4 days.

Conversely, firms in the communications sector added close to four days to the time taken to pay their bills over the past 12 months and were the worst payers at 52.6 days. The public administration sector followed, taking 51.4 days to pay their bills, an increase of nearly one day over the same period. Firms in the construction industry also took longer to pay their bills, up by 0.5 days in the past year to 49.1 days.

“The uptick in consumer spending seen late last year has bolstered business operations, particularly for firms in industries heavily impacted by consumer spending, such as the retail and services sectors. This has lowered their payment times to levels which are below the national average,” Ms Woods says.

Christchurch businesses, which have been heavily affected by the Canterbury earthquakes, paid their bills slightly faster than the national average at 44.4 days, representing a decrease of 3.4 days over the past 12 months. Christchurch firms were also the quickest to pay their bills, with Auckland and Wellington firms both averaging 46.2 days. This is an improvement of one day for firms in both Auckland and Wellington.

D&B’s data also indicates that businesses with one to 19 employees have consistently been quicker to pay their company accounts than large businesses (500+ employees). New Zealand’s small to medium enterprises (SMEs), which account for approximately 97 per cent of total businesses and one-third of the nation’s income,* are taking the shortest time to pay their accounts at 43.5 days. This equates to an improvement of nearly two days in the past 12 months. Businesses of all sizes, except those with 500+ employees, improved the time taken to pay their bills over the past year.

Average payment times for those with more than 500 employees have increased by 1.3 days over the same period, to 49.2 days. Larger firms (500+ employees) have also taken 1.8 days longer over the past two years to pay their accounts, with these firms averaging 47.4 days in the March quarter 2010. In addition, over the past two years, the gap between small and large business payment days has steadily widened, up from 2.7 days in the March quarter 2010 to nearly six days in the same quarter in 2012.

“We are seeing a conscientious effort by small businesses to cut their payment times. Given these businesses account for such a significant proportion of the New Zealand economy, improved payment times for these businesses should have substantial positive flow-on effects for business cash flow.”

Note: D&B's trade payments analysis utilises the accounts receivable records of New Zealand firms. The D&B database contains millions of current trade references, which are analysed and segmented by various demographics.
* Ministry of Economic Development.

© Scoop Media