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Top 10 States with the most amount of businesses accounts receivable debt past due (September 2010)

Top 10 States with the least amount of businesses accounts receivable debt past due (September 2010)

The Cortera Past Due by State Report tracks late payments of businesses within each state against agreed upon terms, measuring the percentage of late accounts receivable by state. This monthly report of accounts receivable (A/R) activities by state measures the payment activities of approximately 20 million public and private business locations.

Fast forward to today and Cortera’s related business view of debt and delinquencies – our Past Due by State Report – and the picture looks a little less rosy. Unless of course, you’re a business owner in Nevada.

According to our just published data, businesses in the top-ten most delinquent states look to be trending in the wrong direction, revealing a less than uniform impact of the supposedly improving economy. In fact, 9 of the top 10 most delinquent states showed delinquencies actually getting worse.

One of the nice exceptions is Nevada, far too long a poster child for delinquent businesses. As it turns out, Nevada businesses improved to the point that the state no longer makes the dubious top ten list. And that welcome surprise might be as much a sign of impending recovery as consumers suddenly finding the cash to pay down their personal debts.

So how is the recovery impacting debt, delinquencies and deadbeats in your neck of the woods? Is cash suddenly flowing quicker or is the stress still front and center? We’d love to hear from you.

According to a Cortera study produced for the American Chamber of Commerce Executives (ACCE), chamber members consistently received better credit scores than other businesses in their region, their states, and across the country as a whole. The study covers 10 regional chambers to ensure both geographic and economic diversity. To a chamber, member businesses scored well above 600, compared to the national average of 557, even in hard hit states like Oregon and Florida.

When we asked the respective chamber execs why such a favorable discrepancy exists, some suggested it matched with the responsible corporate citizen profile of the average chamber member. Others pointed to a great sense of partnership and local commerce responsibility – local businesses helping each other out by paying their bills more rapidly and ensuring fluid cash flow for all. Still others pointed to the types of programs chambers put in place to ensure members were always up to speed on the best finance, accounting and credit practices. Whatever the answer, one thing is clear: When comes to credit in this era of risk adverse lenders and trading partners, chamber members enjoy a distinct competitive advantage.

Joining Oregon on the less-than-favorable top 10 list are Wisconsin (20.46 percent past due), New Mexico (19.79), Florida (19.72), Minnesota (19.64), Nevada (19.55), Michigan (19.15), New York (18.30), and Hawaii (18.05).

As the saying goes, “if I don’t get paid, you don’t get paid.” Timely payments are critical to ensuring fluid cash flow and therefore optimizing working capital. Unlike the larger credit story, where business owners can quickly point to banks and other lenders for their woes, we’re all in this one together. And at the risk of over simplifying, we all control our own interdependent destinies. Pick your suppliers, partners and even clients carefully, and make sure you take the time to assess and reassess risk when it comes to the payment behavior of those directly responsible for your cash flow. Or adopt a strategy of doing business exclusively with Alaskan companies.

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)

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.

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%

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.

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.