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Bibby Financial Services warns of more pressure on cashflow

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Australian businesses can expect more pressure on cashflow as payment terms hit a seven-year high, warns Bibby Financial Services .

The latest Dun & Bradstreet trade payment analysis reveals that payment terms across all industries hit 55.6 days in the June quarter, the highest point in seven years and almost four weeks past the standard payment term of 30 days.

“Tight credit conditions and the slowing economy are forcing businesses to stretch payment terms well beyond the limit, placing a major strain on businesses already feeling the pinch from high fuel costs and higher costs of finance,” said Bibby Financial Services’ Managing Director, Greg Charlwood.

“These businesses may be finding it difficult to fund new orders or meet wages, tax and expenses on time as a result. The impact could be greater for those who do business with large and private companies, as they are commonly the slowest when it comes to paying accounts.”

Big businesses with 500 employees or more continue to be the worst offenders, averaging double the standard term (60.7 days) to settle accounts, a week longer than small businesses with up to 50 employees.

Private companies are now slower to pay than their public counterparts, averaging 60.9 days to settle accounts in the June quarter, an increase of around six days since the June 2007 quarter.
Public companies took 58 days to settle accounts in the last quarter, which is actually 1.7 days shorter than the June 2007 quarter but a deterioration of around two days since the March 2008 quarter.

NSW has been joined by Victoria as the slowest paying state. Both states increased payment periods from the June 2007 quarter, with NSW up 2.9 days and Victoria up 4.0 days.

Greg Charlwood said the Dun & Bradstreet figures indicate tougher times ahead for businesses, sparking concerns that insolvencies could rise to record levels in the coming year.

“The number of companies going into administration each month surpassed last year’s high of 747 in May and we expect further increases as more businesses come under pressure.”

“The longer that businesses have to wait for payment, the higher the strain on cashflow and operations generally. The cash might be flowing, albeit slowly, but a hiccup can cause major headaches. And with banks and other lending institutions tightening their belts there are less lifelines available” he said.

Greg Charlwood added that the property market slump may further exacerbate credit conditions, affecting funding limits for traditional mortgage-backed finance.

“With house prices predicted to drop 10 per cent over the coming year, business owners will have less equity to fund commercial needs and may be forced to source finance through other means.”

Offering alternative cash flow and funding solutions, Bibby Financial Services’ business doubled in July and has been increasing consistently throughout this year.

Bibby Financial Services’ factoring and discounting facilities help companies improve cash flow and access additional working capital by converting up to 90% of the value of each sales invoice into cash within 24 hours.
It also provides an optional sales ledger management service, issuing statements, handling cash allocations, collecting outstanding payments and maintaining detailed accounts of the business’ transactions.

This cost effective solution helps free time to focus on management, operations and moving the business forward, which are all important priorities in a tough climate.

Greg Charlwood said there are several precautions a company can take to ensure it maintains cash flow in a difficult trading and credit environment.
“It is important to keep accurate records, and make regular checks that invoices are correctly addressed, that they relate to the goods delivered and include order numbers. Stay on top of your debtor situation and take action immediately when there are problems, following up overdue accounts by phone.

“Use a solicitor only as a last resort, as the legal bill may be out of all proportion to what you are owed. Consider using the experience of a debtor finance organisation that has systems and resources to help you manage accounts receivables cost effectively, in addition to providing the flexible source of funding needed to manage cash flow,” he advised.

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