Cashflow woes worsen as payment terms stretch for small firms

Small businesses with five staff members or fewer continue to battle against patchy cashflow conditions, with the Dun & Bradstreet’s latest quarterly payment terms survey showing the average payment terms of small firms has risen 2.2 days to 53.2 days.

The deterioration in payment terms among small business helped boost the national average for payment terms by one day to 53.6 days.

That’s well down on the 56 days recorded in the first quarter of 2011, but up from the 52.2 days seen in September 2011.

The number of firms paying within the standard payment period of 30 days dropped 16.5% during the quarter and 62% of all trade payments were late during the June quarter.

The number of payments classified as “severely delinquent” at more than 90 days late is also a concern, jumping 13% since the June quarter of 2011.

Dun & Bradstreet director Adam Siddique said the deterioration in payment terms at the SME end of the business community would inevitably flow through to the wider economy.

“It’s particularly concerning that SMEs are waiting longer to be paid and, as a result, are taking longer to pay their own bills. Trade credit constitutes a significant and critical portion of non-banking finance. When this is delayed, it withholds millions of dollars from businesses and the wider economy.

“Small business payment terms now more closely resemble those of a large corporation. However, small operations are less equipped to manage for cash flow issues, particularly if they are waiting more than two months to be paid for goods and services.”

Payment terms at larger businesses actually improved, with firms employing 50 to 199 staff managing to trim average payment terms by 1.6 days during the quarter, to 50.3 days.

Firms in the finance sector saw a marked deterioration in payment terms, rising 2.7 days, while retail payment terms stretched by 1.7 days. Both sectors now have average payment terms just under 60 days.

Siddique expects payment terms to continue to rise in the second half of calendar 2012 as firms battle patchy economic conditions.

“We have witnessed a number of high profile failures during the past 12 months, in part a result of cashflow issues related to slowing demand and higher operating costs. This is obviously impacting business payment terms.”