Research released yesterday by Dun and Bradstreet revealed that businesses took longer to pay each other and the number of firms with outstanding debts increased during the three months ended December.
"Those figures support what our members are telling us, and the expectation is that things are going to get worse," Mr Young, of Dunedin, said.
The slower payment would become increasingly worse as inflation increased during the year.
If inflation reached 5.1%, as predicted by many economists, cash would be "sucked" from the businesses through extra administration and interest costs.
If businesses defaulted on paying accounts, the supplier would sit in overdraft longer.
Also, those suppliers would face increased operating costs, he said.
If people paid on time, it was one invoice and one statement and the cost was manageable.
But if it took a follow-up phone call, or another invoice or statement, then operating costs increased quickly.
"The longer it goes on, the more financial stress a business comes under," Mr Young, the principal of Debtworks (NZ) said.
The latest Dun and Bradstreet research showed that an additional 4% of New Zealand firms failed to pay their trade credit accounts during the December quarter, compared with the previous corresponding period.
Businesses were also taking more time to pay each other, with firms taking an average 43.9 days to settle their trade accounts - two weeks above the standard 30-day payment term.
Dun and Bradstreet New Zealand general manager, John Scott, said a 4% increase in the number of firms paying their accounts late had the potential to inflict cash-flow difficulties on a large number of firms.
"This is a worrying trend, as it can draw more and more businesses into the late payment cycle, making it increasingly difficult for firms to escape the pressures associated with slow-paying customers."
For small firms in particular, that type of delay in receiving payment for products or services could push a business into severe financial stress, he said.
Mr Young said one of the consequences of seeing cash-flow disappear was firms looking at more marginal business, which also had inherent risks.
"As the average days of payment increases, cash-flow worries also increase and you start worrying about getting paid.
You want to write more business.
You have written all the good business, and now you start looking at stuff on the edge where you are less likely to get paid.
"The natural instinct is to look for additional business rather than improve the business you have."
As the cash flow of businesses decreased, the velocity of money in the economy slowed and cash flow slowed further, he said.
There was no magic formula to fix that problem.
Interest rates were likely to rise this year and there would be more competition for business, and firms would be back to writing marginal business, Mr Young said.
Big firms faced the same realities as small firms, but had better controls in place, such as dedicated staff to look after payments and cash-flow.
Smaller businesses did not have full-time credit managers.
The cycle started with individual customers not paying a business, which in turn could not pay its suppliers, he said.
Some of the things businesses could do included looking at discounts for cash, if margins could support that, and looking at who they provided credit to, and why.
Sometimes credit was given to someone because someone else had, not because they were good payers or reliable, Mr Young said.
The Dun and Bradstreet research showed that nine of the 14 sectors examined experienced a deterioration in their payment times compared with the previous quarter, while 10 allowed payments to slow, compared with the previous December quarter.
The biggest deterioration in payment times came from the communications firms, which averaged 50.4 days to settle their accounts.
The fastest paying group was the agriculture sector, which took 39.9 days to pay, making it the only industry that took less than 40 days to settle its accounts.
Larger firms (200 to 499 and more than 500 employees) were consistently slower payers than smaller businesses.
Those with 500 or more employees were the slowest to pay during the December 2010 quarter, taking 46.7 days to settle their accounts.
Public firms were slower to pay than their private counterparts.
What businesses can do
- Consider discounts for cash, if margins allow them.
- Look at who you provide credit to, and why
