Late payments put financial strain on business

Slack customers are failing to pay their bills on time, putting pressure on businesses to meet their financial obligations

October 11, 2010

Australian businesses are being put under financial pressure because a majority of customers fail to pay their bills on time.

A new survey by the Atradius Group has revealed a third of Australian businesses do not pay their bills by the required date, while 46 percent delay payment without prior negotiation.

The global survey of 3900 companies from 22 countries found most international customers paid their bills one day early compared to the Australian average of two days late.

Atradius, a trade credit insurer, says late and unexpected payments impact a business’ cash flow, can affect their ability to meet their payments to other parties and even default on loans.

"Just because your customer is in the same town or state doesn’t make it easier to chase a payment or make a delayed payment less impactful on your business," Atradius Managing Director David Huey says.

"A strong consistent credit management policy for both domestic and foreign buyers will reduce trade risks and contribute to improved financial health."

According to the survey, Australia has one of the world’s shortest average payment terms of 26 days. The world average is 32 days.

"Short payment terms put immense pressure on cash flow. The primary determinants of credit terms for Australian businesses are the company and industry standard payment terms with little flexibility for customer negotiations," Huey says.

He says incentives such as discounts for settling bills early might help reduce the rate of late payments.

Huey says a turbulent economy has prompted Australian businesses to request advanced payments from foreign customers, leading to bills being paid before or on the due date.

Australian exporters ranked Japan as the best paying foreign customer, followed by New Zealand. US and Chinese customers were considered the worst payers.

Huey warned exporters to be cautious when trading with domestic and international customers due to the strain due to global financial uncertainties are putting on businesses.

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