New Zealand businesses are taking an average of 6.8 days to pay their overdue bills this year – a 10% annual increase in payment time that may be driven by risk.
Data registry firm illion's latest New Zealand Late Payments Analysis for FY 2018 found that while businesses are taking longer to address late payments compared to last year, they are still quicker to pay than Australian businesses.
Australian businesses take an average of 11 days, however they are getting better (they reduced late payment times by 25% in FY18, while New Zealand businesses are taking longer.
According to illion economic adviser Stephen Koukoulas, there are a number of issues that are growing, despite a healthy business sector that is supported by low interest rates and solid economic growth. Those risks include uncertainty about interest rates.
“Higher late payment times fit with the run of mixed news on the economy which has seen the Reserve Bank of New Zealand present a more cautious approach to the interest rate outlook,” explains Koukoulas. “If late payment times continue to rise, it will likely be a factor working against an increase in the official cash rate and could even open the door for the next move in rates being down.
The survey data also compared New Zealand's regions and found that overall North Island businesses will take 7.1 days (an 11.8% YoY increase in payment time), while South Island businesses take 6.1 days (7.6% YoY increase).
Wellington saw payment times rise by 15.8 per cent during the year, while Christchurch had the lowest annual increase. The North Island, weighed by Auckland's consistently above average late payment times, remains the worst broad region, recording an 11.8 per cent increase during the year.
“An important aspect of the regional late payments data is how little divergence there is between the highest and lowest times. This difference is relatively low and probably reflects a more stable state for the underlying fundamentals of the New Zealand economy,” comments Koukoulas.
Larger businesses are more likely to be guilty of late payments. Those with more than 500 employees take an average 8.9 days, while those with one to five employees take 6.9 days. Wholesalers are most likely to be affected by later payments, while agriculture businesses are more likely to pay their bills quickly.
Wholesalers saw late payment times surge 13.7% during the year to 9.7 days, the highest average for the sector since June 2015. Late payments in the Agriculture industry fell the most during FY2018 and the sector has seen late payment times fall by 62% over the past five years.
“Over the past year, only two sectors recorded a fall in late payment times – agriculture and utilities. For agriculture, which has a heavy reliance on exports, the lower level for the New Zealand dollar is likely impacting positively on cash flows. The late payments data contrast with a range of recent business surveys which have been pessimistic in recent quarters,” Koukoulas concludes.