Payment times plummet
Australian businesses settled their invoices at a new record-setting pace of 45.1 days on average in Q3 2015. This compares to 49.2 days in the previous quarter and 51.7 days in the same period last year, as revealed by Dun & Bradstreet’s latest Trade Payments Analysis. The result suggests businesses have exceptionally healthy cash flows as a result of the favourable credit environment, spurred by the Reserve Bank’s October decision to leave the cash rate unchanged at 2.0% for the fifth month in a row.
According to Stephen Koukoulas, Economics Advisor to Dun & Bradstreet, “The spectacular decline in average invoice payment times since the middle of 2014 suggests firms are experiencing favourable cash flows. A combination of savings from record low interest rates, reasonable income growth and on-going economic expansion mean that firms are well placed to pay their bills more quickly than at any time in many years.”
Despite an average payment time that was four days faster than the previous quarter, the headline Q3 result was not reflected in the percentage of businesses settling their invoices within 30 days, which fell from 68% in Q2 to 66%. Meanwhile, 26% of businesses paid their invoices in 31-60 days, compared to just 21% in the previous quarter.
According to Dun & Bradstreet’s September Business Expectations Survey, 43 per cent of businesses would choose to miss a payment to a trade supplier if they were unable to pay all of their bills. The survey also found that 35 per cent of businesses have had a customer or supplier become insolvent or otherwise unable to pay them during the past year.
Businesses with between 6-199 staff paid their invoices at the fastest average rate of 41.5 days, but businesses with 1-5 employees recorded the most improvement at 43.3 days, compared to 47.0 days in the previous quarter and 49.1 days last year.
Businesses in Queensland, New South Wales and Victoria paid their invoices around four to five days faster than in Q2, while businesses in Tasmania, the Northern Territory, Queensland and New South Wales reported an improvement of at least one week compared to average payment times in Q3 2014.
Similar to previous years, businesses in the Utilities sector were the slowest to pay their invoices, with an average of 53.7 days, 1.7 days slower than the previous quarter and on par with the same time last year. Meanwhile, the Fishing industry posted the fastest average payment time for the fourth consecutive quarter and was the only sector to break into the thirties, with an average payment time of 37.2 days. The Communications sector reported the most improvement on Q2, with an average payment time of 43.8 days compared to 49.8 days.
Mr Koukoulas (Economics Advisor to Dun & Bradstreet) said the sharp reduction in invoice payment times indicates the economy is in sound shape and there is no need for further interest rate reductions from the Reserve Bank.
“The invoice payment times are often viewed as a measure of financial stress for the business sector – when firms are slow to pay their bills, they are generally experiencing financial pressures and when payment times fall, as is the case in the past year, they are clearly cashed up,” Mr Koukoulas said.
Reproduced from Dun & Bradstreet’s media release
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