30 November, 2009
Poor payment priorities to hurt business in the months ahead
New Zealand firms are hurting each other and setting themselves up to be locked out of the credit market as a result of the way they are prioritising payments. New research released today by Dun & Bradstreet (D&B) reveals that eight in ten firms are prepared to miss supplier payments if they are unable to pay all their accounts and half of firms are settling their bills late as a result of cash flow issues or because their own customers are paying delinquently.
The new study also reveals that many firms are unaware of the implications of paying late on their ability to access credit. Six in ten firms indicated that if they knew late payments would detrimentally impact their credit standing they would be more likely to pay on time. This finding comes at a time when financial institutions and trade credit providers continue their stringent focus on trade reference checks as part of the credit assessment process. Consequently, paying late or failing to pay at all could leave New Zealand firms unable to access credit in the months ahead.
Prioritisingpayments - bills that New Zealand firms are least likely to pay
The study's findings follow D&B's latest trade payments data which reveals that New Zealand firms averaged 44.3 days to settle accounts in the September quarter 2009, which means that firms are being forced to wait an additional two weeks beyond standard terms to receive payment for their products and services. Coming on the back of these results, the Business Payment Priorities Study provides clear evidence that cash flow pressures remain prevalent, despite signs that New Zealand is on the path to recovery.
Just less than half of firms admitted to having paid their bills late in the past 12 months, with 15 percent paying in a severely delinquent manner (60+ days past due). Further demonstrating the cash flow strain facing New Zealand firms, one third of respondents indicated that cash flow issues was the primary reason for paying their accounts late and a further 22 percent indicated their customers' paying late was the cause of poor payment behaviours.
According to John Scott, Dun & Bradstreet's General Manager, New Zealand firms' are hurting each other and themselves.
"Cash is absolutely critical to business survival and prosperity in an economic recovery," said Mr Scott.
"However, the payment habits of New Zealand firms are making cash flow management increasingly difficult. Around half of firms admit to paying their bills late - this is causing cash flow to come under increased pressure despite improving economic conditions.
"On top of this, firms are indicating they would be willing to miss payments to their suppliers, the very payments that are recorded on their credit file and assessed by lenders and trade credit providers when they apply for funds. This means firms could find themselves unable to access credit as lenders continue their vigilant focus on risk management."
The Payment Priorities Study revealed that six in ten firms would be more likely to pay their bills on time if they knew late payments were being listed with a credit reporting bureau and could worsen their credit standing. Conversely, knowing that early payments would be listed with a bureau (improving the credit standing of firms) would make 30 percent of firms more likely to pay promptly.
Listing payments with a credit reporting bureau (firms more likely to pay on time)
The impact of listing payments with a credit bureau differs by business size. Sixty three percent of firms with 201-499 employees indicated that a late payment listing would make them more likely to pay their bills on time, while 43 percent of firms with 500+ employees indicated this action would change their behaviour. Conversely, 31 percent of firms with up to 50 employees said the listing of early payments would make them more likely to pay their bills on time. This figure dropped two percent for firms with 500+ employees and a further four percent for those with 201-499 staff.
"The study's findings demonstrate that many firms are unaware their payment records are being listed with a credit bureau or they don't fully understand the consequences of their payment behaviours," said Mr Scott.
"The likelihood that a credit provider is unaware of a firm's poor payment behaviour is very low."
The study revealed a number of ways in which New Zealand firms can influence the payment behaviours of their customers and ultimately improve their cash position. The first is dealing appropriately with administrative issues. Ten percent of firms indicated they had paid their accounts late because the purchase order number had not been quoted on their invoice and a further 11 percent said the bill had been sent to the wrong address.
"In this environment, firms cannot afford to give their customers excuses to pay their bills late. Otherwise, administrative issues which are relatively simple to rectify will continue to detrimentally impact business cash flow," said Mr Scott.
Contact by a debt collector was another motivator for on-time payment, with more than half of firms indicating they'd be more likely to pay on time if they were contacted by a collections firm.
The Business Payment Priorities Study follows D&B's latest economic and risk forecasts which show that despite renewed business optimism, it could be some time before executives' confidence is translated into business actions that support the real economy. While cash flow issues remain prevalent, business investment and hiring intentions will continue to come under pressure. Consequently, D&B is forecasting real GDP growth of 1.1 percent in 2010.
"It is evident that New Zealand firms will continue to face challenges as the economic recovery unfolds," said Mr Scott.
"In this environment, survival and prosperity are dependent on firms maintaining a strong focus on the fundamentals of cash flow management and implementing the right strategies to ensure that customers pay promptly. Failing to do so will only result in poor cash flow and in more extreme cases, could see firms end up as another statistic on the failed business register."
For further information and comment please contact:
Danielle Woods
D&B Australia
Ph: +61 2 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 150 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than 1.5 million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
