Australian businesses are taking longer to pay their bills as soft economic conditions bite

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Many Australian businesses are taking longer to pay their bills, suggesting that weakness in the domestic economy may be a factor despite record-low interest rates at present.

According to research from Dun & Bradstreet, 40.2% of Australian businesses failed to pay their bills on time in the first quarter of this year, with around a quarter of those taking in excess of 60 days to settle on their bills.

Of those businesses who paid late, the group found that the average delay was 15.3 days, the lengthiest that it’s been since the September quarter of 2014.

As this chart from Dun & Bradstreet shows, that increase is part of a broader trend, and comes despite the RBA cash rate currently residing at the lowest level on record.

Source: Dun & Bradstreet

Stephen Koukoulas, Dun & Bradstreet economic adviser, said that this was likely due to weakness in the economy in the early parts of the year.

“Late payment times have continued to increase, this suggests that some of the weakness evident in the economy early in 2017 has impacted the time it takes firms to pay their bills,” he said following the release of the report.

“Low interest rates are likely to have had a positive effect in reducing payment times, but this is likely to have been offset by less robust trading conditions in the economy more generally.”

That view paints a very different picture to that of the NAB’s Australian business confidence survey which suggests business operating conditions are currently the strongest that they’ve been since before the global financial crisis.

As this next chart shows, late payment times didn’t lengthen in just one or two of Australia’s states and territories during the quarter, but everywhere.

Source: Dun & Bradstreet

Given the lengthening of payment times is deemed to be a sign of weaker operating conditions, this suggests that a slowdown may have occurred across the entire Australian economy during the quarter.

Reinforcing the link between economic conditions and the time to settle outstanding bills, the survey found that late payment times lengthened the most in Western Australia over the past 12 months, recording an increase of 37%.

That compared an 11.9% increase nationwide over the same period.

“The general economic weakness in Western Australia is reflected by a marked rise in late payments, particularly for the mining and construction industries,” said Koukoulas.

And, from a broader perspective, he says the trend in payment times from retailers — one of the key cogs within the Australian economy and the second-largest employer across the country — also warrants close attention.

“Retail is a sector to watch as it is increasingly showing signs of distress in the face of weak wage growth and subsequent consumer confidence,” he says. “This is likely to be compounded by a once in a lifetime shift in habits as shoppers seek bargains online rather than during high street sales.”

Late payment times for the retail sector lifted to 16.2 days in the March quarter, up from 15.6 hours in the same quarter a year earlier.

A small increase, yes, but one that warrants close attention given its importance to the Australian economy, particularly at a time when employment across the sector has been declining sharply.
This final chart shows the evolution in late payment times by individual sector, comparing the results this year to those of a year earlier.

Aside from Australia’s fishing industry, late payment times increased in all sectors monitored.

Source: Dun & Bradstreet

While a slightly concerning trend, with late payment times increasing nationwide and across most sectors, Koukoulas doesn’t think that there’s need for concern, at least not yet.

“The rise in late payment times is not yet a concern for the economy, but if there is any further deterioration it will emerge as a further issue that will impact on the deliberations of the Reserve Bank of Australia and could lead to lower interest rates,” he says.

The Dun & Bradstreet survey analyses trade information from the group’s Commercial Bureau, capturing payment information on 778,000 business operating in Australia.

On that score alone it is a more than useful guide as to underlying trends across the business sector.

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