Fewer companies are paying their bills on time, leaving businesses along the supply chain struggling to pay their bills, Dean Thomson of Link Receivables Christchurch, a credit management company, says. “Cash flow crisis is the number one problem facing small and medium enterprises.”

The economic downturn was causing companies to hang on to their money a bit longer, keeping it in the bank rather than paying creditors, he said. “That’s why we’re going to see companies increasingly running into difficulties. With the downturn in the economy, that is going to get worse.”
 
Research from credit services firm Dun & Bradstreet shows that smaller businesses (one to five employees) are averaging 49 days to settle 30-day accounts.

Mr Thomson said a sale lost 5 per cent of its value if an account was 30 days overdue and 20 per cent after 90 days. “At this point the profit is gone, and it’s a case of recuperating some costs. They would have been better off not trading.”

During the past five years businesses had gone through good times and liquidation numbers were down, but things started to change when finance companies began collapsing, Mr Thomson said. Small to medium businesses were finding it harder to get finance to pay creditors, because banks and finance companies were tightening up. “Finance companies aren’t financing businesses as much. They’re not as loose as they used to be.”

For most companies it wasn’t an issue of turnover. Most businesses were busy, but they weren’t the best at getting customers to pay their bills. “They have good businesses, good turnover, good marketing, good everything else, they just don’t have the funds coming in. It is going to get worse over the following months because the money is not coming in.”
 
Canterbury Employers' Chamber of Commerce chief executive Peter Townsend said it was important that firms kept a close eye on their debtors and controlled their cash flow in an environment where margins were squeezed as costs were rising.

“Cash is king. Companies don't go broke if they’ve got positive cash flow,” Mr Townsend said.

Mr Thomson talked to a mechanic who was owed $327,000. “I looked at his ledger and I said Mate, if you had this $327,000 in the bank today you’d be a rich man. He went broke three days after that.” The mechanic did not have the money to pay his bills and Inland Revenue were knocking at the door. “He didn’t have the skills to go out and collect the money.” Mr Thomson said he saw similar stories each week as small businesses were often slow in chasing outstanding accounts. A measure of the situation could be taken from the increase in businesses seeking his help.

Tina Law - Business Day - The Dominion Post - 27 March 2008