Fewer businesses are paying their bills on time as they try to cope with reduced cash flow.

According to the latest Dun & Bradstreet Trade Payments Analysis, the number of payments falling within the standard 30-day term fell 16.5 per cent quarter-on-quarter.

Further underscoring the deteriorating conditions faced by businesses is the performance of small businesses, which recorded the biggest deterioration in payment terms of 2.2 days. Businesses with between one and five employees are now operating under an average term closer to that of larger firms, at 53.2 days.

According to Dun & Bradstreet Director, Adam Siddique, cash flow issues within the small business sector will have a significant knock-on effect to the rest of the economy.

“It is particularly concerning that SMEs are waiting longer to be paid, and as a result are taking longer to pay their own bills. Trade credit constitutes a significant and critical portion of non-banking finance. When this is delayed, it withholds millions of dollars from businesses and the wider economy,” he said.

“Small business payment terms now more closely resemble those of a large corporation, however small operations are less equipped to manage for cash flow issues, particularly if they are waiting more than two months to be paid for goods and services.”

Conversely, larger firms managed to reduce payment terms in the June quarter by a day on average, with businesses employing between 50 and 199 staff shedding 1.6 days during the quarter to 50.3 days. This was significantly lower than the national average of 53.6 days, which rose by almost a full day.

In addition, two-thirds (62 per cent) of all trade payments were late during the second quarter. The number of severely delinquent payments (90+ days overdue) also rose noticeably during the last 12 months – up 13 per cent since the June quarter last year.

“The payment terms of Australian firms have been trending steadily upwards throughout 2012, the result of a conservative consumer and continued economic uncertainty impeding cash flow

“It is likely this trend will continue into the second-half of the year, as firms struggle with a difficult trading environment,” Siddique said.