Trade credit levels back to normal

Australian business reliance on trade credit returned to normal levels last year, after spiking dramatically during the financial crisis.

Dun & Bradstreet released figures drawn from its 10 million commercial credit reference files this week, which show total outstanding trade credit jumped from $110 billion in 2007 to $190 billion the following year.
 
Balances remained elevated, at $170 billion, in 2009, before coming back to $110 billion last year.

Dun & Bradstreet defines trade credit as business supplying goods and services to business on delayed payment terms. Trade credit balances change when businesses take more of their supplies on trade credit terms, rather than using bank facilities to pay for them upon receipt, or seek extended terms.

D&B spokesman Damian Karmelich said people tended to view trade credit as a standard invoicing arrangement and dismissed it as a significant financing tool.

Karmelich said: "All businesses use it to some extent. It is a matter of degree.

"These figures show that it can be a valuable source of business finance at certain points in the business cycle. It is actually a massive short-term financing tool."

D&B also reported that during the financial crisis payment-days actually improved. This surprising outcome is thought to be the result of companies worrying about access to bank funding and wanting to remain on good terms with their creditors.

D&B said the reduction in overdue accounts during the financial crisis was one of the reasons Australian business came through 2008 and 2009 in relatively good shape. It said that post-GFC, however, the number of days businesses take to pay suppliers have started to move back up again.