New Zealand invoice payment times remained steady during Q1 2016 after averaging 35 days for the previous three quarters. According to Stephen Koukoulas, Economics Advisor to Dun & Bradstreet, “business cash flows remain in excellent shape with the trade payments times remaining at record levels”. Dun & Bradstreet’s Trade Payments Analysis shows New Zealand businesses took 35.2 days on average to pay their invoices during Q1 2016.
The Q1 result follows record payment times booked throughout last year, hitting a low of 35.0 days in Q2 2015. It comes as the New Zealand’s Reserve Bank cut interest rates by 25 basis points in March 2016, taking the official cash rate to a record low of 2.25 per cent.
The Q1 2016 Trade Payments index result was almost two days faster than the same quarter last year, during which companies took 37.0 days on average to pay their invoices. The country’s payment times leveled at 35.3 days in Q3 2015, before marginally increasing to 35.8 days in Q4 2015. Mr. Koukoulas said low interest rates and the steady pace of economic growth have ensured New Zealand companies “pay their accounts quickly”.
“It points to a healthy business sector even though there are headwinds in the form of volatile dairy prices, global economic uncertainty and what is still a relatively high value for the New Zealand dollar”, Mr. Koukoulas added.
The New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion for Q1 2016 found business confidence dropped during the quarter. The Reserve Bank of New Zealand has since left the official cash rate unchanged at 2.25 per cent in April. A net 26% of businesses reported higher costs over the first quarter of 2016, which is the highest level since mid-2012, according to the institute’s survey.
The number of companies that paid their bills within 1-30 days during Q1 2016 increased by three percentage points to 86 per cent. Meanwhile, 12 per cent of businesses paid bills within 31-60 days, compared to 14 per cent in the previous quarter.
All sectors, except for the Agriculture and Fishing industries, booked faster payment times in Q1 2016 compared to the previous quarter of Q4 2015. Meanwhile, the Forestry, Construction, Manufacturing, Wholesale, Retail and Services industries recorded faster payment times than the national average of 35.2 days for Q1 2016. The Forestry industry booked the fastest payment time of 31.6 days. It also booked the fastest payment time during Q4 2015 at 31.8 days.
Companies of all sizes settled their invoices at a faster rate in Q1 2016 compared to the final quarter of 2015. Businesses with between 6 and 19 staff, as well as 50 and 199 staff, were the fastest to pay their invoices at an average rate of around 33 days.
Mid-sized businesses (50 to 199 staff) narrowed their average payment times by two days between Q4 2015 and Q1 2016, from 35.2 days to 33.2 days. Companies with more than 500 employees took the longest to settle their invoices at 39.2 days for the first quarter of 2016.
North Island businesses booked faster average payment times (35.6 days) than South Island businesses (34.3 days) for Q1 2016. Both North and South Islands and the key cities of Auckland, Wellington and Christchurch recorded faster payment times versus the previous quarter and the prior corresponding quarter of Q1 2015.
About Trade Payments Analysis
Business-to-business payment information is a highly predictive data set and a critical element in credit risk scores and business failures forecasting.
The distinct advantage of trade information over other forms of company data is its ability to provide insight into current performance. Company financials, which are considered to be critical to effective decision making, are reported relatively infrequently and as a consequence, organisations may be required to make decisions using data that is up to 12-months old. Conversely, because trade information is reported monthly, it reveals how an organisation is paying its existing obligation.
Trade data is also effective across all business sizes, being the most predictive element in SME scores and the second most predictive (behind financials) in other credit scores. The predictive nature of trade data combined with its timely availability enables businesses to properly assess credit risk.
This includes the identification of both high and low risk customers, thereby enabling firms to minimise the risk of late payments and bad debts and identify the good credit accounts that will create long-term, profitable credit relationships.