Payment times the lowest in 10 years
The New Zealand economy continues to show signs of recovery, with business-to-business payment times falling to their lowest level in nearly a decade, following an improvement of four days year-on-year and two days quarter-on-quarter.
These findings are from the latest Dun & Bradstreet Trade Payments Analysis, which examines the millions of accounts receivable records contained on the D&B database.
424
The New Zealand economy continues to show signs of recovery, with business-to-business payment times falling to their lowest level in nearly a decade, following an improvement of four days year-on-year and two days quarter-on-quarter.
These findings are from the latest Dun & Bradstreet Trade Payments Analysis, which examines the millions of accounts receivable records contained on the D&B database. The analysis reveals that average payment times during the September quarter 2012 fell to 40.3 days, a figure that is significantly lower than the peak of 50.8 days recorded at the height of the GFC and on par with levels previously seen in the June quarter of 2004.
In comparison, New Zealand’s largest trading partner, Australia, recorded payment times of 52.5 days during the September quarter. This was nearly two weeks longer than Kiwi firms and remains higher than pre-GFC payment times.
This reduction in payment times, which has been trending downwards since 2008, aligns with recent Reserve Bank data indicating a pickup in domestic trading conditions. The economy grew by 2.4 percent in the year to the September quarter and official data suggests that this growth will likely continue over the rest of the year and into 2013.
According to D&B New Zealand’s General Manager, John Scott, lowered payment days signal the improved cash flow position of many firms.
“It is certainly encouraging to see that the majority of New Zealand businesses are cutting the time taken to pay their bills,” said Mr Scott.
“This trend has been evident over a number of quarters now, and suggests that firms are better understanding and managing their cash flow. This trend having a flow-on effect on the broader economy, as businesses continue to experience more positive financial conditions and as a result, less of a strain on their cash flow cycles.
“Trade credit accounts for a significant portion of short-term finance for firms and consequently, is one of the most important identifiers of individual business health as well as overall economic health. This is particularly true for small businesses as they often rely more on trade credit rather than bank credit.”
Businesses with six to 19 employees were the quickest payers during the September quarter at 39.4 days. This was down by nearly three days from the same quarter last year and down by 1.4 days from the June quarter, to reach the lowest level in eight years. This was followed by firms with 20 to 49 employees, at 39.6 days – this was also down by nearly three days year-on-year and down by two days quarter-on-quarter.
The slowest payers were businesses with more than 500 staff at 42.4 days, although this was down by nearly five days year-on-year and by 2.6 days quarter-on-quarter.
According to Stephen Koukoulas, D&B’s Economic Advisor, the sharp decline in average payment days fits with other news pointing to a broader lift in the economy.
“There is a strong correlation between average payment days and the strength of the economy. A rise in the days taken by firms to pay their bills usually signals weak economic conditions, while a fall in payment days – like we are witnessing now – typically indicates more favourable financial conditions. It appears firms that are sufficiently cashed up pay their bills sooner,” said Koukoulas.
Adding to the positive outcome is the performance of individual sectors, most notably firms in the commodity sectors of agriculture, forestry, fishing and mining, which collectively make up eight per cent of the national Gross Domestic Product.
In particular, firms in the agriculture sector took 36.9 days to pay their bills, down by more than three days. This sector was the fastest payer compared to all other industries, reflecting its strong financial position relative to the rest of the economy. Recently-released Reserve Bank figures indicate that economic growth in the 12 months to the September quarter was largely driven by increased production in the agricultural sector off the back of favourable climatic conditions.
Businesses in the fishing sector took 39.2 days to pay their bills in the September quarter, representing an improvement in payment times two days year-on-year, and by 4.5 days quarter-on-quarter. Forestry and mining firms each took 37 days to pay their bills, three days below the national average and down by 1.4 days and 2.2 days respectively year-on-year. In particular, the mining industry improved payment times quarter-on-quarter by more than three days.
In contrast, firms in the traditionally late-paying sectors of communications and electric, gas and sanitary services (EG&S), averaged payment times of 43.7 days and 41.8 days. This was an improvement of nearly one week year-on-year for firms in the communications sector and an improvement of just under eight days year-on-year for those in the EG&S sector, with the latter sector recording the biggest reduction. Both industries also reduced payment times by more than one day quarter-on-quarter.
“The eight-year low in average payment days suggests there may be potential for acceleration in economic growth. If these sorts of numbers are sustained or even built upon in the next few quarters, we could see an unexpected pickup in economic activity in the latter part of 2012 and into 2013,” said Mr Koukoulas.
“Given the sluggish performance of the economy in recent years, this would be a most welcome development. This lift may even bring forward speculation about the possible timing for the first interest rate hike in 18 months.”
