The cash flow of Australian firms is improving, with businesses paying their bills more than three days faster than 12 months ago. However, despite the year-on-year improvement and a fall from the 2009 peak of 57.4 days, payment days remain substantially above pre-GFC levels.
Dun & Bradstreet's March quarter 2012 Trade Payments Analysis, which examines more than eight million current accounts receivable records to reveal the ability of firms to pay their bills on time, shows the average payment time for Australian firms is 52.6 days. This figure represents a slight increase on the prior quarter and remains well above the five-year low of 51.4 days that was recorded in the third quarter of 2007.
Dun & Bradstreet's director of risk management services Damian Karmelich said the improvement in payment days over the past year is encouraging, but there is still room to improve.
"Australian businesses are clearly in a stronger cash position today than they were 12 months ago, but there is still a long way to go before business payments return to the levels seen prior to the global recession," Mr Karmelich said.
"Businesses, particularly SMEs, which make up a substantial portion of Australian firms, rely heavily on trade credit as a form of ongoing funding. The recent improvement in average payment days will help these firms and the timing is pertinent given recent ABS figures reveal an 8.4 per cent slump in business lending.
"However, we shouldn't lose sight of the fact that businesses are still taking up to three weeks longer than they should to pay their accounts."
During the March quarter, sectors including Services, Construction and Retail recorded significant improvements in payment days. The Services industry improved payments by 4.4 days to 51.1 days, while Construction shed 3.5 days to take payments to just above the national average of 52.8 days. Retail businesses also recorded a notable improvement, reducing terms by 2.9 days to 53.1 days. However, Finance firms were the standout, improving terms by more than six days, to 51.8 days, over the past year.
Wholesale firms were the fastest payers during the first quarter, at 50.9 days, while the Mining industry maintained one of the longest trade payment terms during the March quarter, at 56.2 days.
Smaller firms also improved their payment days significantly year-on-year. Businesses employing one to five staff reduced payment days to 50.6 days, an improvement of 4.7 days over the past 12 months. However, firms employing more than 500 staff took an average of 60.3 days to settle their accounts during the first quarter. This represents a year-on-year deterioration of two days.
"Small firms suffer the most when suppliers' payments lag," Mr Karmelich said.
"This trend occurs because SMEs often operate on thin margins, and rely heavily on timely payment from vendors to stay afloat. Yet regardless of how quickly their suppliers pay, smaller firms continue to support business cash flow by being the quickest to settle their accounts."
Across the country, Western Australian firms were the fastest to settle accounts at 51 days, well below the national average of 52.6 days. Businesses in Western Australia, and Queensland also saw times improve by up to four days over the year. Meanwhile, Tasmania and Victoria recorded smaller year-on-year improvements of just 1.2 and 2.2 days respectively.
"The improvement we are seeing in business payments should create a flow-on effect that will ultimately put more firms are in a better position to pay their bills earlier in the cycle." Mr Karmelich said.
This article first appeared on TandLnews.com.au