New Zealand firms have improved payment terms for the second consecutive quarter, with a drop of 2.7 days from March.
Businesses now take an average of 45.7 days to pay their bills, the latest Dun & Bradstreet quarterly trade payment analysis showed.
However, despite the improvement, business-to-business payments remain significantly above the standard 30-day term, and there are warnings that a blow-out in terms could be on the horizon.
In a separate study, D&B has rated, since April 1, almost 17,000 firms as being at higher risk of paying their trade accounts in a "severely delinquent manner".
That signals that despite the improvement in payment terms in March and June, there could be more cash flow pain to come for many businesses.
WHK Taylors tax principal Scott Mason and business advisory specialist Peter Hocking said credit appeared to be flowing again.
Anecdotal evidence showed companies in the United States were starting to hire again, and credit appeared to be flowing.
"We know that economies are cyclical. So whether the upturn begins now or some months in the future, business owners and managers must turn their minds to preparing for the upturn."
The Otago Daily Times asked Messrs Mason and Hocking to provide some main points for businesses to consider as New Zealand emerged from the downturn.
The challenge for businesses was to position themselves for growth and to take opportunities as they arose.
"There is a real opportunity to steal the march on competitors if your business is leaner, fitter and better prepared."
Some of the things that businesses should be considering now:
• If businesses have not properly addressed the current situation, they should do that first. Businesses needed to stabilise in order to have a sound platform to generate cash and grow. Get a hold on cash flow. Tighten up processes and take control of costs. Take the tough decisions.
• Remember the way the current situation is addressed will greatly affect the ability to meet the upturn. Take care when cutting costs to avoid short-term fixes. Focus on improving efficiency and shop around to get the best deal.
• Many businesses cut discretionary expenditure like marketing and advertising spending. Research had shown companies that continue to advertise through a downturn grow significantly more quickly as the economy improves.
• Cutting jobs is tough, but if it is necessary to protect the business it should not be delayed. Take care to retain key people and skills which will enable the business to grow again. Businesses could recruit again, but skills and experience take years to develop.
• Retaining and continuing to develop key people is doubly important as the labour market improves. If talented people do not feel valued, they will leave when new opportunities are presented to them.
• WHK always encouraged business owners to commit time to working on their business, rather than in it. Often owners complained they did not have the time to do that. The slowdown might provide the time - use it well.
• Remember that the lending environment might have been changed permanently by the recent crisis. The banks still have lots of cash to lend but the lending criteria might be tighter. Speak to your professional advisers about producing a credible business plan supported by robust forecasts.
Mr Mason said banks were sometimes asking for monthly reports from their clients.
That sometimes created tension between his staff and clients, but the banks were insistent the reports be prepared.
Mr Hocking said that when he was in the US recently, he spoke at length to the chief executive of a technology company in California who successfully steered his company through the dot-com crash of the early 2000s and then grew the business substantially.
"He learned a lot of these lessons at the sharp end. He took the tough decisions, refinancing the business, reducing the workforce by 40% and reducing costs by negotiating manufacturing contracts, lowering travel costs and sub-letting office space."
To reduce the $US25,000 a quarter utility bill, the business removed every second light bulb in the building.
Employees even personally adopted plants in the office, saving $US5000 a year previously paid to a contractor, he said.
Crucially, the company retained key talent and invested significant energy into maintaining strong relationships with staff, customers and suppliers.
As the sector recovered, the company had the products its customers needed while many of its competitors had disappeared, Mr Hocking said.
Mr Mason said he had seen too many businesses procrastinate on making tough decisions.
"Unfortunately, all the owners have done is delayed the inevitable and spent more of they equity they had in their houses."
The lessons of the previous downturns were clear.
Businesses must take the tough decisions but they should avoid the temptation to think short-term and take the time to plan for the upturn, he said.
Action plan
> Think about your business strategy. Get creative. Brainstorm new ideas for products, services, markets and delivery.
> Streamline services and improve processes.
> Investigate infrastructure and IT projects.
> Work on marketing. Make those calls, establish networks of contacts and sales leads.
> Do not forget existing customers. Treat them well, give them great service and reinforce relationships.
