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Surge in downgrades for NZ firms indicates more pain to come

Surge in downgrades for NZ firms indicates more pain to come
New Zealand firms look set for "more pain to come" after 82,000 firms had their risk or payment profiles downgraded in the last 15 months, Dun & Bradstreet General Manager John Scott said. This was the most downgrades experienced by New Zealand firms in a 15 month period. "In a clear sign of the stress in the economy, close to 38,000 firms are now rated a higher risk of financial distress in the coming 12 months and a further 44,000 are more likely to pay their trade accounts in a severely delinquent manner," the credit reporting agency said. "This re-rating follows recent Dun & Bradstreet trade payments analysis revealing that business-to-business payment terms were about three weeks above the standard term during the March 2009 quarter, showing that cash flow pressures are prevalent in the economy," the agency said. "The downgrades are a clear sign that the crisis is impacting the real economy with the outlook for trade credit "“ the lifeblood of the economy "“ deteriorating severely. This in turn is limiting the ability of businesses to trade with each other." "While the downgrades have occurred across the entire nation and all industry sectors, younger companies, the services sector and businesses located on the north island had the highest number of risk and payment downgrades." "The scale of the downgrades are significant and demonstrate the extent to which the recessionary climate has impacted New Zealand businesses. However the recession alone is not to blame. Downgrades on this scale are a clear sign that many businesses simply weren't paying close enough attention to risk management and cash flow and these businesses have been caught out by the change in conditions." "The findings suggest that the economic downturn is likely to be prolonged and difficult for many firms, with the spike in payment downgrades evidence that cash flow and liquidity issues will remain a key challenge in the months ahead. The fact that on average more firms have become a higher risk of paying their bills late than actually failing is a clear sign that cash flow will continue to tighten."

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