Australian businesses are taking longer to pay each other in 2013 compared to a year earlier, in an indication that their level of financial health has not improved.
Despite edging down in the June quarter, businesses are taking 54 days to settle their accounts this year according to analysis of more than 8 million trade payment records by Dun & Bradstreet. Business payment times provide accurate insight to the financial health of businesses – those with available cash tend to pay their accounts in a timely manner, while cash-constrained businesses pay late.
After trending at around 53 days from mid-2011 until the end of 2012, payment times have edged up during 2013, suggesting that business cash flow remains an issue.
These findings, from D&B's Trade Payments Analysis for Q2 2013, reveal the challenging conditions being negotiated by companies and highlight the relevance of the Australian Government's discussion paper on improving small business cash flow, which was released in July.
After increasing steadily following the global financial crisis, trade payment times in Australia improved through 2011, and again in mid-2012. These improvements, however, have been reversed across the past six months in particular, as the pressures of the current business environment impact the capacity of companies to pay their costs.
The slowdown in the time that businesses are taking to pay each other during 2013 suggests that business conditions are not improving, and the proximity of a genuine economic pick-up is still some time away.
Despite low interest rates making access to credit more affordable, businesses' ability to pay their invoices in a timely manner appears to be deteriorating in the face of weak sales activity and high operating costs.
A slow cash flow cycle can be a vicious cycle – when one business pays late, it can force the other to delay its own payments until it has money available. This pattern appears to be at play in the business community at the moment.
