Record number of company downgrades

Nearly 82,000 New Zealand businesses have had their risk or payment profile downgraded since January last year, the largest number of downgrades ever in a 15-month period.

The figures come from credit reporting agency Dun & Bradstreet which surveys most of the country's 550,000 registered companies.

The results suggest that the economic downturn is likely to be prolonged and that conditions are going to get worse before they eventually turn a corner, the agency says.

General manager John Scott said the findings were also a conservative view, because only an estimated 350,000 companies actively traded at any one time, meaning a greater proportion of active businesses were struggling.

The Dun & Bradstreet data shows 38,000 firms were rated as being at higher risk of failure in the coming year, while 44,000 were more likely to pay their bills in a "severely delinquent" manner. A company is considered delinquent when it takes 90 days or more to pay its accounts.

The agency records the flow of trade credit from the country's largest companies down, linking all businesses to each other. "That allows us then to work out how people are paying each other and what the trends are over time," Scott said.

For example, outdoor clothing and casual wear maker Line 7, which went into receivership on Monday, had been taking twice as long as the average for its industry to pay its creditors.

"We've been showing for the past 12 months that that organisation had a very high risk of being a slow payer."

Trade credit was the lifeblood of an economy, and the deteriorating situation limited the ability of businesses to trade with each other, Scott said.

Dun & Bradstreet believed there was more pain to come in the economy and, while there were green shoots, they were signs in the distance. The bad news was cancelling out the good. "There are still a lot of export partners that we deal with who are experiencing tough times.

"So what we're saying is we still feel that there'll be more companies falling over before it starts to improve," Scott said.