Firms 'hurting themselves' with late payments

New Zealand firms are hurting each other and setting themselves up to be locked out of the credit market as a result of the way they are prioritising payments, according to research released yesterday.

Dun and Bradstreet (D&B), a leading credit reporting, sales and market data and debt collection company, said the research showed that eight in ten firms were prepared to miss supplier payments if they were unable to pay all their accounts.

Half of firms were settling their bills late as a result of cash flow issues or because their own customers were paying delinquently. D&B general manager John Scott said firms were hurting each other and themselves.

The research showed that many firms were unaware of the implications of paying late on their ability to access credit. Six in ten firms indicated that if they knew late payments would detrimentally impact their credit standing they would be more likely to pay on time.

The finding comes at a time when financial institutions and trade credit providers continue their stringent focus on trade reference checks as part of the credit assessment process. "Cash is absolutely critical to business survival and prosperity in an economic recovery," said Scott.

"However, the payment habits of New Zealand firms are making cash flow management increasingly difficult.

"Around half of firms admit to paying their bills late - this is causing cash flow to come under increased pressure despite improving economic conditions."

Scott said firms were indicating they would be willing to miss payments to their suppliers - the very payments that were recorded on their credit file and assessed by lenders and trade credit providers when they applied for funds.

"This means firms could find themselves unable to access credit as lenders continue their vigilant focus on risk management."

Scott said the likelihood that a credit provider was unaware of a firm's poor payment behaviour was very low.

The Business Payment Priorities Study follows D&B's latest economic and risk forecasts which show that despite renewed business optimism, it could be some time before executives' confidence is translated into business actions that support the real economy. While cash flow issues remained prevalent, business investment and hiring intentions would continue to come under pressure. D&B was forecasting real GDP growth of 1.1 per cent in 2010.

- NZPA