Net 30 Blog

Small businesses paying bills faster. A sign of confidence?

December 14th, 2009 by Alex Coté

Today, we published our latest report of small business payment activities (see chart below). After witnessing a growing gap between the payment habits of large and small businesses – as recently as a month ago small businesses payments languished at a 38 percent higher days beyond terms (DBT) than big businesses, who had since returned to pre-recession norms – November data show a remarkable improvement for Main Street shops. Such improvement in paying behavior is typically a sign of confidence, as business owners feel more comfortable in doling out working capital with the expectation of replenishing cash via new business. But the latest survey results from the NFIB make it pretty clear that after months of a more optimistic outlook, small business confidence is once again starting to wane. Adding cold water to the fire is another poll from CNN/Opinion Research Corp., released last week, that revealed consumer confidence in the economy starting to fade. Such data tends to poke some major holes in the confidence theory.

So if confidence is not behind the improving payment behavior, what exactly IS driving down delinquencies? While it’s hard to point to a specific answer in the data – and while one month hardly constitutes a sustainable trend – here are a few possible contributing factors:

1. Deadbeat Darwinism: We’ve said it before and we’ll say it again. The best way to ensure timely payments is to report, proactively deal with, and do the proper reference checks to avoid deadbeat clients and partners. With growing sensitivities to such risks and forums like our own Cortera Credit Exchange, which make it easy to ‘out’ such delinquents, small businesses may taking the necessary steps to avoid such problems. Serial deadbeats and companies in trouble are therefore less and less likely to be mucking up the system.
2. Past due debt off the books: Another flavor of deadbeat Darwinism, but this one at the tail end of the cycle. With little or no hope of recovery long outstanding debt – overdue bills – well past 90 days DBT, many businesses simply write it off. Thus, this delinquency data is no longer weighing on the average.
3. Improved credit management: Perhaps business owners are more sensitive to increasingly stringent lending conditions – and how business credit reports are built – given the notoriously risk adverse position and tight lending habits of banks these days. Maybe they’ve taken our advice and realized that the best way to self manage working capital in the absence of abundant credit availability is to ensure that they and their partners all pay their bills in a timely manner, thus optimizing cash flow throughout the entire system. Regardless of the reason, we may be witnessing an increasing emphasis on better credit management habits for Main Street.

As always, another month’s worth of data will go a long way toward sorting this out. But in the meantime, what do you think is contributing to a sudden improvement in timely payments? We’d love to hear your thoughts and ideas.

• Posted in: Business Credit, Cash Flow, Cortera Credit Exchange, Credit Crunch, Market Trends, SBI, Small Business, Smalll Business Index
• Permalink: http://blog.cortera.com/2009/12/14/small-businesses-paying-bills-faster-a-sign-of-confidence/
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