18/07/2006 - 08:43

Australian trade payments leave business at risk

18/07/2006 - 08:43


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Australian businesses have seen a gradual improvement in the promptness of business-to-business trade payments over the last quarter, but the average payment period in June is still at around 54 days, keeping the pressure on.

Australian businesses have seen a gradual improvement in the promptness of business-to-business trade payments over the last quarter, but with the average payment period in June still at around 54 days, the pressure is still on as the new financial year gets underway.

The latest figures, released today in the Dun and Bradstreet trade payments analysis, reveal that the average trade payment period exceeds the standard 30 day payment term by almost 24 days - continuing to signal cash flow and credit risks for all businesses, with small business most likely to feel the impact.

The mining industry continues to be the slowest paying industry at an above average of 58 days, followed once again by the manufacturing industry at 55 days. The most prompt payers remain those in the agriculture, fisheries and forestry industry and construction industry who settle their bills in around 51 and 52 days respectively.

D&B Australasia chief executive Christine Christian said that whilst the recent reduction in payment periods is a positive sign, Australian businesses must look to further improve their cash management practices to limit their risk exposure.

"Cash flow is the lifeblood of any business and in order to control credit risk, it is critical to implement effective receivables practices. This is particularly pertinent for small and medium sized businesses as they will continue to be most susceptible to risk in the current trade payment climate, especially if they rely heavily on big corporations for the bulk of their revenue."

"To help manage their ongoing cash flow, all businesses must ensure that they acquire information about their customers prior to extending credit. This should assist them in assessing risk and identifying potential cash flow issues at the outset," Ms Christian said.

According to Ms Christian, this should become common practice for all business considering that about 6,000 companies enter external administration in Australia each year.

"The recent trade payment figures indicate that businesses are continuing to hold on to their money for as long as they can before paying their bills.

"Industries such as mining - consistently the slowest payers - will inevitably encounter some delay in their cash flow cycle due to external factors such as export costs. However, although this may have some impact on their business-to-business payments, it doesn't explain the current extended period.

"With Australian executives continuing to be uncertain about the economic environment ahead, small and large businesses alike should concentrate on streamlining their cash management practices otherwise we could see a dramatic increase in company insolvencies," said Ms Christian.


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