According to Dun and Bradstreet commentary from October 2013, “Australian businesses are failing to pay their bills on time more often than not, with 60 per cent of invoices settled beyond the standard 30-day payment period.”
Dun & Bradstreet's latest Trade Payments Analysis, “has seen businesses pay their bills in an average of 53 days during the third quarter of the year; more than three weeks beyond standard terms.”
The third quarter of 2013 saw the average days taken to settle outstanding invoices drift sitting at 53 days. At first sight it might not seem like such a big deal, but there are serious cash flow and cost implications, particularly for high turnover, low margin businesses
For every $5M of annual turnover an average 23 day delay in receiving payment takes $315,000 out of working capital and if that hole has to be filled by increased borrowings, at 10%, there’s a cost of $31,500 in additional interest.
Getting paid on time is a challenge, but businesses can help themselves. At FactorONE we stress on our clients the importance of having their paperwork in order. The correct details including the payment terms on their invoice, quoting the correct purchase order numbers, ensuring that the detail such as number of units and price per unit is accurate etc. It’s also important to issue invoices and statements in a timely manner and to have an effective collections programme in place.
By way of comparison the average days outstanding across our client base in Australia at the end of the September quarter was 41 days, a difference of 12 days against the national average, which equates to a positive working capital variance of $164,400 per $5M of annual turnover.
So, to summarise, days outstanding is more than just a statistic. It has significant cash and cost implications. The lower the better and it can be influenced.
