Wednesday 26th January 2011
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Small businesses need to treat their accounts payable as one of their major assets and manage them accordingly, according to Dun & Bradstreet.
An increasing number of firms are delaying bill payments, despite companies investing more in managing their accounts in the wake of the global financial crisis, and cashflow is likely to remain under pressure this year.
New Zealand firms took an average 43.9 days to settle trade accounts during the December quarter, up from 43.5 days a year earlier, and a worrying two weeks above the standard 30-day payment term, the credit information and debt management services company said.
At its worst, days to settle was 50 days at the height of the global financial crisis, and it has been as low as just under 40 days in the last decade, Dun & Bradstreet New Zealand general manager John Scott said.
"Business are investing far more now in this process, it's costing them more so they've got to get better returns," he said.
An examination of millions of accounts receivable records on its database showed that 4% more firms failed to pay their trade credit accounts during the December quarter, compared to a year earlier.
"This is a worrying trend as it can draw more and more businesses into the late payment cycle, making it increasingly difficult for firms to escape the pressures associated with slow paying customers."
People forget that credit is not a right, he said.
"New Zealand firms need to recognise the value of their accounts receivable as it is typically the largest liquid asset on an organisation's books - mismanagement of this crucial asset has the potential to bring a business to its knees."
The challenge small business faced was that one large event, such as illness or a key customer going bankrupt, could knock them over because they lacked the large pockets of a big business.
Companies were advised to include terms of trade in contracts with every customer, and follow up overdue accounts quickly and persistently.
"You want to be creditor number one, not creditor 21," Scott said.
Remove goods and services from a company if it does not meet its obligations, he said.
Companies facing tardy payments sometimes had to dip into loans or reserves, instead of investing money in their own business and growing.
At its worst, if enough struggling businesses held onto their cash for as long as possible, the situation would spiral into the worst case scenario of pay-when-paid, Scott said.
"By that stage, everyone's effectively heading over the cliff together - we're not at that point yet, but it's just mindful that businesses will fall over as a result because cashflow is always a challenge."
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