The good news: The vast majority of your customers and partners are paying their bills on time. The bad news: The delinquent minority is only getting worse.

Having access to the A/R activities of millions of businesses provides us with a unique view into the nation’s cash flow. And since the beginning of the year, we’ve been seeing a steadily improving trend in the amount of corporate accounts receivable debt that is current (see chart 1 below). In fact the vast majority of debt tends to be current – most companies simply pay their bills on time. Even at its worst in February of this year, on a national basis 81% of debt was current. Today that number stands at approximately 83%.

However, companies still must deal with the other 17% of businesses that fail to pay on time. While this number is not dramatically out of line, we’re seeing unsettling growth in the amount of debt over 90 days past due (see chart 2 below). This is not surprising given the well reported growth in amount accounts sent to collections agencies since the recession started, but it is causing finance staff and business owners to be more diligent and get more creative when it comes to dealing with a deadbeat drag.

Have you seen your 90+ days aging bucket growing? Please share a story or two on how you are dealing with this growing problem.

Chart 1: Percent of Current Commercial Account Receivable (US National Average)

Chart 2: Percent of Over 90 Days Past Due (US National Average)

Yesterday we focused on how companies in Nevada have the highest amount of past due accounts receivable debt in nation for the first 9 months of the year, giving the recession weary state another dubious distinction. On the flip side, businesses based in all 6 New England states have maintained better than average – or in this case below the national average – payment behavior throughout 2009.

In other words, New England businesses are among the most reliable in the nation when it comes to paying their bills on time. And at a time with tight lending conditions and strained cash flow, this suggests that these regional businesses are experiencing less economic stress than counterparts in other states.

This month’s numbers are no different (see table below). A quick look at the rankings and you can see that three out of the top 10 are in New England, with the remainder falling in the top 25.

Today we issued our monthly best and worst states in terms of the payment behavior of companies in those states. We started this reporting back in January and one data point has been consistent: the state of Nevada has remained at the top of worst performing states with over 25% of corporate receivables past due (see below). That is over 50% higher than the national average of 16.99% past due and over 262% higher than Alaska the current state with the lowest percent past due. Simply put, companies in Nevada are paying their bills dramatically slower than the rest of the country. Nevada is certainly not alone with Utah and Minnesota not far behind.

Bottom 10 States with Highest Percent of Accounts Receivable Debt Past Due

1. Nevada (NV) 25.55% corporate A/R debt past due

2. Utah (UT) 24.38%

3. Minnesota (MN) 24.02%

4. Colorado (CO) 21.92%

5. Arizona (AZ) 21.64%

6. Wisconsin (WI) 21.37%

7. Hawaii (HI) 20.71%

8. New Mexico (NM) 19.73%

9. Oregon (OR) 19.63%

10. Texas (TX) 19.52%

Top 10 States with the Lowest Percent of Accounts Receivable Debt Past Due

1. Alaska (AK) 7.05% corporate A/R debt past due

2. Maine (ME) 7.25%

3. Kansas (KS) 8.50%

4. South Dakota (SD) 8.98%

5. Wyoming (WY) 10.24%

6. Montana (MT) 10.89%

7. New Hampshire (NH) 11.36%

8. Vermont (VT) 11.55%

9. Louisiana (LA) 12.22%

10. West Virginia (WV) 12.26%

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.

In case you missed it, there was a great front page article yesterday in the Wall Street Journal entitled “Big Firms Are Quick To Collect, Slow to Pay” about how, you guessed it, the biggest companies are speeding up their collections efforts while slowing payment to their small business partners. In essence big companies are squeezing the little guys, slowing the flow of cash to small businesses while at the same time requiring these companies to more rapidly pay their bills. This helps the big guys build their cash position, but strains the cash flow of small businesses. There are several examples in the article of bigger companies pushing out their payments to their smaller suppliers simply because they can, a trend that’s to be expected. But the article and trend raise bigger questions. With over 20 million small businesses in the US, could the credit actions taken by the largest 1% of companies temper the reinvestment and expansion activities so vital to fueling a tentative recovery? By withholding cash from the small businesses who most need it, is big business, inadvertently, prolonging the credit crunch — or at least passing along the pain?

The analysis by REL Consultancy, a division of the Hackett Group showed that “Companies with more than $5 billion in annual revenue took an average 55.8 days to pay suppliers and trade creditors in the second quarter, up 5% from 53.2 days a year earlier, according to REL. They also collected faster on their bills, taking an average 41 days versus 41.9 days a year earlier. Businesses with less than $500 million in sales paid vendors in an average 40.1 days, down 6.5% from 42.9 days, REL found. They took roughly 8% longer to collect payments, or an average 58.9 days, versus 54.4 days a year earlier.”

Has this practice started to impact your business? Are you getting squeezed by your biggest partners? Seeing shortened cash cycles? Have best practice tips for dealing with such practices? We’d love to hear from you.

Today’s  question is courtesy of our eCredit software team.  The chart below is based on a review of over 10 million customer-initiated invoice disputes logged by users of the eCredit system in the last 12 months.  (total value of these cases is just under $21.7B)

While it is possible that the significant increase in dispute cases in Q3 and Q4 of 2008 is unrelated to the overall economic slowdown, the data raises some interesting questions:

• Did companies actively use disputes as a way to manage cash during a critical period? or

• As the economy tightened up, did firms raise the level of due diligence, thus discovering more disputable errors?

The flow of money through the supply chain is as crucial as the flow of goods. While the flow of goods is driven by sales, the flow of money is largely influenced by a company’s confidence that those sales will continue. Strong confidence in sales normally spurs companies to invest in growth initiatives. On the other hand, a lack of confidence in sales causes companies to conserve cash and slow payments to suppliers.

Cortera’s Supply Chain Index (SCI) is a measure of financial confidence. The most recent Cortera SCI figures indicate that, while there is clearly more accounts receivable stress than a year ago, confidence in sales may be starting to return. Two interesting trends are emerging in the latest analysis of accounts receivable data through April 2009:

• The amount of late A/R is decreasing. In April, the amount of A/R in the SCI more than 30 days past due fell to 11.0%, an improvement of nearly 16% from the December 2008 level. This represents the fourth straight month 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.
• The age of late A/R is decreasing but not as fast as the amount. April’s overall Days Beyond Terms (DBT) for the SCI also improved but to a somewhat lower degree (13.8%). So less A/R is more than 30 days past due but overall late debt continues to increase in age. This implies that companies are not missing payments as often but are guarding cash while they monitor inflows.

Even with these improvements, the current A/R performance profile is significantly below than that seen prior to 4Q08. On a year-over-year basis, DBT has worsened by nearly 34%. Will these signs of returning confidence prove to be the start of a recovery or just CFOs taking a breath after a hard fall?

When General Motors filed bankruptcy on Monday, June 1 in New York, much of the focus was on the continued loss of jobs, impact on the overall health of the US economy, and the Obama Administration’s plan for the US automotive industry going forward. In our last post we looked at the auto industry suppliers as a whole – here we dig into the suppliers most impacted by the collapse of GM.

Number one on the trade debt claim front (sixth largest creditor overall) was Starcom Mediavest Group which is owned by Publicis Groupe SA and their $121.54 million in exposure. With S&P now looking to potentially downgrade Publicis’ credit rating because of their exposure to GM, it is fair to question the impact on others listed by GM. Publicis makes the list twice with its own claim of $25.2 million, bringing their family exposure total to $146.8 million. Please find the complete list below.

GM’s Suppliers are Paying Their Suppliers Slower

A quick analysis using Cortera’s database of business payment experience shows that with an average payment risk score for this group of companies of 441, this group is already paying their suppliers slower. More than half the list fall into our “Consistently Higher Risk” Category and additional five suppliers fall into our “Higher Risk, Trending Down” category meaning that they are paying very slowly and in a downward trend over the last 3 months. Interestingly, based on the information reported to us, American Axle’s average Days Beyond Terms (DBT) is 7 days versus the industry average for auto parts suppliers of 9.16 days. Similarly, TRW Automotive is also below the industry average. On the other hand, other auto parts suppliers, including number two on the list below, Delphi, has an average DBT of 21 days–well above the industry average.

General Motors (GM) Suppliers with over $10 million in Trade Debt Claims

Are you a supplier to GM or one of their suppliers? How are you handling the bankruptcy?

Drop us a note.

I’m constantly amazed at the level of intellectual curiosity of my coworkers.  I like to think I am pretty well-read and up on the latest information, but hallway and conference table conversations around here are a learning experience about a wide variety of subjects.  It’s interesting to watch someone take a subject that lots of people are talking about and conduct some independent research, just because they want to know more.  Sometimes the research challenges your expectations.

Here’s an example: The news lately has been full of stories about the auto industry and the current difficulties the big 3 (or whatever we are supposed to call them now) and those who rely on them are experiencing.  Yesterday, one of my coworkers walked into my office with a really interesting blog post on the current reported sales figures for new cars.   (By the way- if you don’t read Barry Ritholz’s “Big Picture”, you should definitely add it to your list)   Anyway, my coworker told me that he wanted to understand how the automaker’s issues were reflecting themselves in the payment behavior of their suppliers.

So we pulled some numbers, and here is what we saw:

To say we were surprised was an understatement. We expected to see continual degradation of payment behavior and ballooning debt.  Could these numbers represent increasing confidence by these manufacturers?

Despite the progress shown above, the industry is still hurting; remember that on Tuesday, I posted that the benchmark past-due percentage across all industries is 12.95% .  A/R currency for these firms remains almost 1% below the overall manufacturing level of 81.05%.

We’re still working on the final numbers for April in other industries- stay tuned for additional snippets of data as we finish our analysis.

As you might imagine, we’re data geeks here at Cortera; and with over $250 billion a month of payment records to play with, we spend a fair amount of time trying to interpret and summarize what we see.  One of the statistics that we thought was striking was the percent of payments that were reported past-due in the most recent reporting cycle.  Overall, payment behavior continues to slow: across all industries; if you were owed a debt in March, our data shows you waited 12% longer to get paid than you did at the end of last year.

Given the contraction in consumer spending, none of us are particularly surprised at the retail figure below; however it’s pretty sobering to realize that $1.02 out of every $5.00 owed by a retailer is past due.  (BTW- this number represents about a 9% overall increase since December.)

What really jumps out at us are the manufacturing sector figures. 18% of trade debt owed by manufacturers is past due. That’s up from 16% just 3 months ago.  We typically see a cycle tied to how businesses; especially manufacturers, pay their debts.  It goes something like:

•    sales decline → payments slow down to preserve cash → hiring slows down (or layoffs occur)

So we’re expecting the cycle to work in reverse as the economy recovers:

•    sales increase → payments improve → hiring resumes

There are hints of improvement in the first phase of the cycle, such as last week’s announcement by the Commerce Department  of durable goods orders in April, but the continued slowing of manufacturing trade payments suggests that we still have some time before we see the effects of a recovery, if indeed that’s the direction we’re going.

Our May numbers will be out in about a week.  It will be interesting to see what the trend is doing.  We’ll post them here when available.