Listed Companies Emerge as Slowest Payers

Listed Companies Emerge as Slowest Payers
Publicly-traded firms took a record week longer to pay bills than private sector

Publicly-listed firms took nearly a week longer than private firms to pay their bills in the three months to December 2011, according to debt collection agency Dun & Bradstreet.

Dun & Bradstreet’s latest Trade Payments Analysis- which examines the ability of firms to pay their bills, and pay them on time- reveals that this disparity in payment terms has been the largest of the past four years.

While payment terms for private companies were on par with the national average of 44.6 days, their publicly-listed counterparts averaged payment terms of 51 days, 2.2 days longer than the previous quarter and 5.8 days longer than the same quarter a year ago.

John Scott, General Manager of D&B New Zealand, believes that these figures represent a concerning shift in payment behaviour from listed companies, particularly since the standard payment period is only 30 days.

“This is indicative of an inherent mismanagement of cash flow that can be potentially hazardous to their financial health, given that firms on the stock exchange contribute significantly to the New Zealand economy,” said Mr Scott.

While listed firms have historically taken longer than their private counterparts to pay their accounts, the latest spike brings payment terms for listed companies to their highest in ten quarters after steadily rising upwards for the past two years.

This correlates with D&B data, which indicates that large firms, those with 500 or more employees were the slowest payers at nearly 49 days. In contrast, firms with one to 20 employees took the least amount of time to pay their bills at 43 days during the December quarter.

According to Mr Scott, the impact of late payments is often less noticeable on a large firm’s cash flow cycle than smaller firms but is just as, if not more important.

“Wherever possible, small businesses pay their bills as soon as they can because they have tighter cash flow cycles and if they are consistently delinquent, we see this reflected in an increased failure rates.”

“Conversely, large businesses with more generous cash reserves are more able to stem any short-term cash flow problems and hence are less likely to fail. This is extremely worrying given the long-term implications of not paying on time,” Mr Scott said.

The D&B Trade Payments Analysis for the December 2011 quarter also found that:

• Kiwi businesses took an average of 44.6 days to pay their bills in the December quarter;

• Businesses averaged a payment term of 45.2 days during the 2011 calendar year, representing an increase of nearly a day from 2010;

• Over half (52 percent) of businesses were more than a day late in settling their accounts, with almost five percent of all firms 30+ days late;

• The forestry sector was the fastest to pay, with payment terms at 39.4 days. Conversely, the electric, gas and sanitary services sector was the slowest paying group at 52.8 days;

• Large firms of 500 or more employees were once again the slowest paying group, recording repayment times of 48.8 days. Businesses with 6-19 employees were the quickest to pay, averaging 42.7 days to settle their accounts; and

• Firms based in Auckland took the longest to pay with average payment terms at 46.3 days. Christchurch firms took 45 days to settle their accounts, making them the fastest-paying city.

Despite national payment terms remaining relatively stagnant quarter on quarter, certain key sectors saw notable deterioration in the time it takes them to settle accounts during the December quarter 2011.

The mining, fishing, agriculture and forestry sectors recorded deterioration in payment terms over the last quarter, after three quarters of improvement; a signal New Zealand’s strong commodity growth could be easing.

In particular, mining firms— traditionally faster payers—took 1.8 days longer to pay their bills since the September quarter, consistent with a 0.8 percentage point drop in the ANZ Commodity Price Index to its lowest level in a year.

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