Small businesses will continue to face cashflow pressures in 2011, with a new report from credit agency Dun & Bradstreet showing businesses are taking an average of 52.1 days to pay their bills, well over the 30-day standard payment terms used by many firms.
The report reveals the number of firms with outstanding debts increasing during the December quarter, with the number of accounts more than 90 days overdue up 7% on the prior year.
Dun & Bradstreet chief executive Christine Christian is particularly concerned about the rise in severely delinquent accounts.
“The rise in severely delinquent accounts is particularly concerning as it means businesses are being denied access to their cash for more than four months,” Christian says.
“For small businesses in particular, this type of delay in receiving payment for products or services could push a business into severe financial stress.”
The report reveals small businesses are often at the mercy of larger businesses, which habitually take longer to pay their debts.
Firms with 500 or more employees are the worst offenders, averaging 56.4 days to settle their accounts, while firms with 50 to 199 employees are the quickest, taking 48.1 days to pay.
Businesses with one to five employees take 51.3 days to pay, while firms with six to 19 employees and 20 to 49 employees settle their accounts in just under 50 days.
Christian says small businesses can be proud of the fact they take less time to pay their accounts, but there is always room for improvement. She also urges small firms to be vigilant about their own clients’ attitudes towards payments.
Christian says when dealing with clients from large organisations, small businesses often shy away from asserting their payment terms from the outset.
“The problem with small businesses is that they are afraid that if they assert themselves too well, they will alienate themselves from potential or recurring clients,” Christian says.
“The important thing for small businesses to do is to be very clear what the terms and conditions are, which should be reiterated by the small business owner. That way, they’re just managing expectations.”
With regard to chasing up clients over outstanding accounts, Christian says businesses need to act if they wish to be taken seriously.
“If you want to be taken seriously, you need to spell out your terms and conditions and then make a call or remind [the client] prior to the day that the account is due,” she says.
“This will also convey a more professional approach as it will show you are concerned about cashflow and know how to run your business.”
Christian says the findings highlight the need for all Australian firms to recognise the value of their accounts receivable “as it is typically the largest liquid asset on an organisation’s books”.
“Mismanagement of this crucial asset has the potential to bring a business to its knees,” she says.