Healthier cash flows resulting in business payments being made earlier, says Dun & Bradstreet

Content supplied by Dun & Bradstreet

The number of business invoices that are being paid on time has risen to a 12-month high as the finances of New Zealand companies continue to benefit from a steady improvement in the local economy and healthy consumer confidence.

Analysis of company invoice payments during the September quarter shows that 61 per cent were made within 30 days, an increase from 59 per cent in the previous quarter and 60 per cent a year earlier.

The majority of late invoice payments were made at between one and 30 days past standard terms.

According to Dun & Bradstreet's Trade Payments Analysis, the increase in prompt invoice payments has seen the average length of time taken for businesses to pay each other fall for a second consecutive quarter to 41 days.

New Zealand's corporate cash flow position has been benefitting from equally improving consumer conditions.

In the third quarter of the year, unemployment fell to 6.2 per cent, while the participation rate and employment rate climbed.

During the same period, retail sales grew 0.3 per cent and D&B's Consumer Financial Stress Index settled at -3.7 points; indicating that Kiwis were less stressed about their financial position than any other time in 2013.

According to Lance Crooks, General Manager of Dun & Bradstreet New Zealand, the latest trade payments findings confirm the health of the local business environment. 

"There is a clear relationship between healthy cash flow and a strong business sector," said Mr Crooks.

“With favourable economic conditions in New Zealand, businesses have had a greater capacity to meet their financial obligations on time and, in turn, invest back into their operations and the economy more generally.

“These September quarter findings on business-to-payments are a positive pulse-check on the state of the economy, which was forecast by the Reserve Bank to have grown by 1.1 per cent across that same period.

“With interest rates unchanged this month, positive employment activity and the Christmas spending period underway, businesses look set to end the year in healthy financial position,” he added.

While one day slower than a year ago, companies operating on the South Island paid their invoices in 40 days during Q3 2013, faster than the 41 days taken by businesses on the North Island. Accordingly, D&B’s analysis has also found that Christchurch businesses settled their accounts the fastest, in 40 days, while in Auckland business payments were made in an average of 42 days.

The agriculture sector continues to outperform all industries in payment times; averaging 36 days to pay its commercial invoices. On the back of strong trade with Asia and surging dairy prices, the agriculture industry has improved its average payment times from 39 days a year earlier.  At 38 days, the fishing industry is the second fastest to pay its accounts, followed by mining and forestry sectors at 39 days.

Despite significant building activity and investment this year, the construction industry is averaging 43 days to settle its accounts; the slowest time across industries.

"The good news continues in New Zealand, with firms clearly benefitting from the mix of accelerating GDP growth, low interest rates and generally favourable business conditions," said Stephen Koukoulas, Economic Adviser to Dun & Bradstreet.

"The trade payments data fits with a scenario recently outlined by the Reserve Bank of New Zealand where the stronger economy and heightened inflation risks will see interest rate hikes during 2014,” he added.