Firms face renewed cash flow pressures, warns D&B

By: Graham Gardiner

Australian firms face the prospect of renewed cash flow pressures in the coming months, according to the latest business-to-business trade

Australian firms face the prospect of renewed cash flow pressures in the coming months, according to the latest business-to-business trade payments figures released by Dun & Bradstreet (D&B).

An evaluation of more than nine million current accounts receivable records contained on the D&B database reveal a deterioration in payment terms (2.1 days) in the December 2009 quarter has taken terms to 53.9 days.

The credit reporting agency’s analysis shows over the past three years, payment terms have increased in quarter-on-quarter terms in the March quarter, indicating further increases could be on the horizon.

D&B CEO Christine Christian says access to cash is absolutely critical to Australia’s economic recovery.

"The outlook for Australia in 2010 is promising," she says.

"Businesses have begun to upgrade investment plans and confidence levels bode well for domestic demand in 2010. However, liquidity and access to cash are absolutely critical in an upturn. Consequently, the decline in payment terms and expected further deterioration are cause for concern.

"If payment terms continue to deteriorate in the months ahead firms may find themselves battling the cash flow pressures that impacted business growth and stability during the height of the credit crisis."

In terms of business size, an increase of 2.7 days took average payments for small firms to 53.2 days in the December quarter.

Payment terms for firms with 6-19 employees increased by 2.1 days to 51.4 days.

Despite this decline in payment terms, smaller firms continue to be quicker to settle their accounts than their larger counterparts.

Those with 500 or more employees averaged 56.8 days to settle accounts in the December quarter – marking their 13thth consecutive quarter as the slowest paying group.

Meanwhile, medium-sized firms (50-199 employees) were the quickest to pay at 49.2 days, making them the only group to record terms below 50 days.

According to D&B, the finance, insurance and real estate sector was the quickest to pay in the December 2009 quarter, at 49.5 days.

The electric, gas and sanitary services sector continued to be the slowest to pay, averaging 58.7 days to settle accounts.

Meanwhile, the forestry sector recorded the most significant deterioration (rising by four days) in payment terms as compared to the previous quarter, while the fishing and agriculture sectors followed adding 3.9 and 3.3 days to average terms in the December quarter.

Public companies continue to be slower to pay than their private counterparts however, the gap between the two has narrowed following deterioration in terms of 2.2 days for private firms.

Public companies averaged 56.2 days to settle accounts in the December quarter (up by one day on the previous quarter), while private firms took 53.9 days to settle accounts.

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