New Zealand Businesses Pay Bills Faster
New Zealand Businesses are Paying Their Bills 12 Days Faster Than Australian Counterparts
AUCKLAND, Nov. 16 /MediaNet International-AsiaNet/ --
D&B Introduce a New Predictive Financial Model - A First for New Zealand
Businesses have effectively tightened their terms of credit over the past 18 months and reduced their outstanding payment days by, in some cases, a staggering 16 days, according to the latest D&B New Zealand Trade Payment Analysis (NZTPA).
The NZTPA figures, released today, cover the period from August 2003 to September 04, and show that on average, businesses pay only 8 to 9 days beyond their payment terms. This was vastly better than Australian businesses who were, on average, paying 20 days late.
The slowest paying industry is Construction and the fastest is Retail – both for the second year running.
Mr David Christiansen, General Manager, D&B New Zealand, said that the fall in trade payment levels was a pleasing sign for New Zealand businesses. However, he pointed out that there appeared to be a trend of payment days increasing at the end each financial year.
“It is very pleasing to see businesses controlling their debtors better than they have for 5 years,” said Mr Christiansen.
“But it is of concern that, in general, businesses are taking longer to pay in the months leading up to the end of the financial year. They have peaked at an average of 48 days in March 2003 and 42 days in March this year.
“If this trend continues, businesses need to anticipate a likely blow out in payment days in March 2005, and should be prepared to focus on receivables in the period leading up to that month,” said Mr Christiansen.
“Cash flow is the lifeblood of any organisation and it is critical that businesses recognise the importance of controlling their receivables. Just because businesses are calling in their debts in record times does not mean that businesses should now relax, especially near the end of the financial year.
For small businesses, reducing the time taken to call in their debtors is absolutely essential for a healthy cash flow. Especially if they are dealing with larger businesses that can be slow in their payments, or other small businesses that adopt slow payment of debts as an habitual means of self-financing.
“As a result, businesses simply cannot afford to become complacent. Any negative shocks to the economy could see payment days blow out to 2003 levels of 50-plus days spelling trouble for many businesses”, added Mr Christiansen.
“While confidence is high and the economy is still performing strongly, business should ensure their payment terms are as short as the market will bear and are clearly stated. They should offer discounts for prompt payment, tighten up credit procedures and put delinquent debtors on COD terms.”
In 2004 the Finance, Insurance and Real Estate industry was below the average trade payment level, reaching only 41 days at its peak, after being one of the worst offenders in 2003, when it hit 52 days in the lead-up to June 30. The Construction industry, although still the slowest paying industry, hit 45 days at its peak. Agriculture and Retail were the best paying industries (37 days), as at September 2004.
Mr Christiansen said that although trade payment days were down and that general economic conditions remain buoyant, credit risks could increase in the next 12 months, and businesses need to prepare for this eventuality.
As a result, Mr Christiansen also announced the introduction of an industry-first product for New Zealand – the Dynamic Risk Score (DRS) - which will be able to predict a business experiencing financial distress, that is, the probability of it becoming insolvent in the next 12 months.
D&B’s Credit Risk Scoring system now incorporates the DRS, and utilises the highest quality information about a company. It combines advanced statistical modelling techniques which have been developed by D&B globally since the mid 1980’s.
“The introduction of this product is a first for New Zealand and one which will benefit businesses enormously,” said Mr Christiansen.
“The DRS will give businesses access to a sophisticated and accurate credit risk tool on more than 260,000 actively trading New Zealand businesses and 90 million businesses globally. It has already been used with great success in Australia and the United States.
As proof of the DRS’s effectiveness as a predictive tool, Mr Christiansen cited a number of Australian companies which had failed this year, including the stationery firm W.C. Penfold Ltd, mining contractor Brandrill Limited and, most recently, the home-shopping company TVSN Limited. All of these companies were rated by D&B as a High or Very High risk of financial distress prior to the appointment of administrators. D&B clients who had used the DRS to check on these businesses prior to their collapse would have avoided any problems
Trade Payment Industry Results Industry Average Days NZ NZ Aus. (Sept ’04) (Sept ’03) (’04 ) Agriculture Forestry and Fishing 37.5 39.5 44.6 Mining 39.3 42.6 51.5 Construction 43.0 46.7 45.0 Manufacturing 42.5 43.7 50.2 Transport and Communications 39.4 43.6 47.2 Wholesale 39.7 41.4 48.2 Retail 37.4 41.7 49.7 Finance, Insurance and Real Estate 38.5 42.3 46.5 Services 38.6 41.5 47.2 Public Administration 39.2 43.7 48.7 Average 39.5 42.4 47.9
About D&B's Trade Information Program
The Trade Information Program at D&B collects the business to business age trial balances of medium to large companies on a monthly basis. This data is cross-matched to D&B's extensive database and makes up 98% of D&B's trade database, giving an objective view on how companies pay their accounts.
Each year, D&B processes over eight million trade and credit references, giving D&B New Zealand the most comprehensive record of business to business transactions in the country.