Late payments put business lending at risk

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Business to business lending has soared in the last three years, but deteriorating repayments terms heighten the risk of business failures in the year ahead, a leading credit bureau says.

Data from Dun & Bradstreet has revealed trade credit grew from $4.87 billion at the height of the global financial crisis in 2008, to exceed $7.6 billion last year.

Dun & Bradstreet New Zealand general manager John Scott said the growth in trade credit was a clear driver of New Zealand's improving economic position following the global financial crisis.

However the deterioration in payment terms suggested the business community may experience some headwinds in the coming year, he said.

More than 20 per cent of payments in 2010 were delinquent, while the average time it took firms to pay each other rose from 40 to 44 days.

Scott said firms must have an unrelenting focus on managing credit risk and cash flow.

The analysis also revealed that while the New Zealand economy was fragile, it was performing better than most other developed countries which had seen a greater deterioration in trade credit.

In the United States more than 75 per cent of trade credit payments were late in the fourth quarter of 2010. Dun & Bradstreet said exporters should expect payment terms ranging from 30 to 120 days when including transfer risk and conversion rates.

In Europe several economies reported that 60 per cent of payments were late in the December quarter. The United Kingdom was the worst performing nation with more than 75 per cent of late payments.

In India and China, where exporters are exposed to a high risk of inflation and economic overheating, payment terms of up to 90 days were reported.

Australia's delinquency rate increased post the global financial crisis with payment terms averaging 55 days.