Australian businesses that are willing to deliberately miss paying suppliers and the ATO will find it much harder to obtain credit in the future, credit agency Dun & Bradstreet has warned.
The warning comes as a new D&B survey reveals approximately 66% of Australian businesses are prepared to skip payments to suppliers if they are caught short of cash, with another 15% also prepared to mix tax payments.
The D&B study also found 51% of companies admitted to paying bills late within the last 12 months, with 25% of those in a "severely delinquent manner" being over 60 days past due.
The figures come ahead of the upcoming reforms to consumer credit laws which will make it easier for lenders to reject potential clients based on a detailed examination of their credit histories.
The report warns failing to pay these bills could hinder these companies from accessing credit, "as financial institutions refuse loans to firms holding a tax debt and credit providers continue their stringent focus on trade reference checks as part of the credit assessment process".
But companies appear unaware of the effect that paying late would have on their ability to access credit, as nearly 66% said if they knew late payments would impact credit ratings they would more likely to pay on time.
The study found 67% of companies with between 51-100 employees said a late payment listing would make them more likely to pay on time, while only 55% of firms with 100-499 employees said a late listing would prompt a repayment.
Large companies were affected the least by the news, with only 8% of companies with over 500 employees saying a late listing would make it more likely for them to pay on time.
The two main reasons cited for paying bills late were cashflow issues, at 13%, and customers paying late, 18%.
Dun & Bradstreet chief executive Christine Christian says cashflow issues are the main problem, and that businesses must realise it will be harder to obtain finance if bills are constantly paid late.
"Lack of cash has meant these businesses have not been able to invest in growing. This is important because Australian businesses are simply hurting themselves and each other. Prosperity in an economic recovery is achievable, yet payment habits of businesses are making it much more difficult."
"The consequences of all of this are that businesses are coming under increased pressure despite improving conditions. If they do not change their habits they will not be able to take advantage of this improving economic landscape."
Christian also says one of the main problems is ignorance, and that businesses need to be up-to-date on what factors will affect their ability to gain finance.
"Businesses are continuing to pay late despite good economic conditions. I think what needs to happen is that they need to pay bills within the terms they are written, otherwise they will find it very difficult to obtain credit and grow."
Read more on:
1) the GFC in general leading to a softening of the economy
2) banks still being very tight with their credit
3) credit insurance companies have restricted their insurance limits markedly
The end result is tighter cashflow, which will get worse as the economy improves. If your business is seeing an improvement in sales - be vary careful about your cash position because as you expand further so your need for cash will increase - increased stock, increased staff etc etc . Even if you don't take the facilities up you should at least be researching such facilities as inventory finance and factoring as both these facilities will grow with your sales and stocking levels to at least provide you with additional working capitl as the economy begins to improve - otherwise you may find your business squeezing your suppliers more and more and delaying payments to the ATO, which could result in some nasty results.........eg being put on stop or being made personally liable for ATO debt......
Good luck to all.
Tim Lea
Partner,
www.cashstream.com.au