Cortera’s Supply Chain Index (SCI) Shows Continued Improvement in US Economy
October 7th, 2009 by Alex Coté
As covered in past Cortera SCI reports, confidence in sales normally spurs companies to grow inventories with the belief that they will be able to move those goods in the future. Cash flow to suppliers tends to tightly match the demand for their goods by the end customer. In a healthy economy companies are paying their suppliers in a timely manner as those inventories are efficiently sold to customers. In a poor economy, companies tend to slow payments to suppliers as inventory sits on the self to help manage their working capital.
Cortera’s Supply Chain Index (SCI) measures the relative health of this flow of cash to suppliers. The most recent Cortera SCI figures indicate that, while there remains more payment friction than a year ago, confidence in sales may be starting to return to more normal levels. A few trends continue from our last report in the September analysis of business accounts receivable data through August 2009:
- The amount of late A/R is decreasing. In August, the amount of A/R in the SCI more than 30 days past due fell to 10.05%, approaching levels not seen since October of 2008, an improvement of nearly 23% from its peak level in December 2008. This represents nine straight months of improvement over that high water mark. Payments more than 30 days late are often the equivalent of missing a payment. That’s a marked change in financial behavior that can signal dramatic changes in a company’s financial situation. An improvement in this measure suggests a return to normalcy and financial stability in companies.
- Late A/R, now standing at 20.9%, has also flattened out and is hovering in the ~21-23% range over the same nine month period—well off the December 2008 high of 27.1%, and nearly in line with the pre-October 2008 run up.
- With the SCI Days Beyond Terms (DBT) now standing at 8.56, on a year-over-year basis, DBT has worsened by nearly 15%. Still, with nine months of improvement behind us and a drop of by over 20% since the December 2008 peak it is clear that cash flow is improving and confidence growing.
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