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?

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.