1. Get Your Suppliers Involved – they’ll love you for it. If you are financially healthy and meeting your own profitability goals, your suppliers and vendors will obviously benefit as you grow and thrive. Encourage them to report to the major credit bureaus (Dun & Bradtsreet, Experian, Equifax and Cortera) so that you get credit (no pun intended) for regularly paying your bills on time.
2. Pay Your Vendors and Suppliers on Time – it might even save you money. Sounds simple, but if you are not paying your bills in a timely manner it will negatively impact your business credit report and will eventually hurt your ability to obtain business credit in the future. Many vendors also provide discounts if you pay early, so if you get in a cash flow habit of paying before the invoice is due, you’ll often save 2% or more off your invoice.
3. Communicate, Communicate, and Communicate. Whether you are extremely profitable with plenty of cash on hand or struggling to pay your next invoice, keeping your suppliers in the loop goes a long way in negotiating your terms. Never go completely dark and stop returning inquiries. And never stretch out payments without being up front and transparent with your suppliers as to why you may need to pursue such a tactic. This will alienate your suppliers and could lead them to cut you off completely, further handcuffing your business and potentially causing you even more pain.

Obviously these are only three of many best practices. Have other ideas or tips? We’d love to hear from you.

Obviously in this economy, as I have reported in the past, there continues to be a large and growing group of companies well beyond their terms. Collectors are turning to the Exchange to report their deadbeats and notify the debtor that they have been publicly reported online. It seems simple, but in a world where everyone is online and reputations are everything, this technique could be just the approach that will get your money in the door. Here is a sample of some of the more colorful ones we’ve seen over the last few weeks:

• “Pays a fraction of balance. Watch this company they must bounce from provider to provider.”
• “This company does not pay subcontractors on commercial projects. They have numerous lien and foreclosure actions in the state of Colorado.”
• “Still working with Owner to settle this account. I am hopeful since we started at $70,000 and are down to $13,500.00. Will not do business with them again.”
• “The A/P dept and Office Mgr. refuse to talk to me or return emails and Voice mails. The owner/Pres. also refuses to reply to emails and voice mail.”
• “Sitting in a receivership right now. These clowns do not pay anyone promptly. Have successfully fought off a mechanics lien against the company in July 09. Currently 91 days past due, and an active litigation, every single payment has required collections activity to get paid.”

Have a few deadbeats in your customer portfolio? Report them here – it will feel good (trust me).

The result is a one sided recovery. The latest data shows that while big businesses have returned to their pre-recession levels of two years ago, small business still remain over 28% higher (paying bills later) than our October ’07 report numbers. Simply put, small businesses are still paying slower than big businesses in an effort to manage their cash flow. Without any additional forms of lending at their disposal, slowing payments is their last resort. The gap, while narrowing slightly in our October Report, still stands at over 38% slower for small businesses as compared to big businesses.

What made this particular meeting standout for me was that for the first time in memory, there were a handful of new members that had never been to this credit group (or any other) before. When a curious but slightly timid newcomer was tapped to discuss one of his accounts first, he requested “Can someone else go first? I’ve never been to one of these – I want to learn how it works.” It was a reminder to veterans that while this may be an essential part of how they do their job, the process of sharing such information – and the realization of resulting benefits – is something that needs to be experienced to be fully understood. Following the meeting, a 30-year veteran of the group recalled his initial experience and why he’s remained committed to collective information sharing throughout his career. Put simply, he felt like it was his duty to pass along his knowledge, techniques and even his network to the next generation, just as the previous generation had done the same for him. And he credited the group and extended network of contacts it has created with an ongoing ability to perform his job at a superior level.

And therein lies the key to such networks — why members remain so committed. Credit and collections decisions are a year-round effort. On the one hand, such meetings provide a period, invaluable opportunity to gain insights that simply don’t show up on a standard business credit report. But equally if not more importantly, they offer the opportunity to broaden a network of peers who can provide similar insight on a when-needed basis.

Given such the added benefits at a time when so many businesses are looking to reduce risks and improve cash flow, we want to know: Are you seeing an uptick in membership and participation in your credit groups? Are you joining new ones? Do you find yourself tapping into such networks more often? We’d love to hear from you. How are you leveraging your credit network?

However, we usually see this cycle of jumps in DBT in November and December—this year we are two months early. The question is why the early move? We could be seeing the impact of big businesses using their market weight and strong cash position to push out payments. Given this growing cash hoard by large companies, the movement in the SCI could be showing a fading confidence in the recovery. Or we could be seeing the effects of tight credit markets for small businesses forcing them to manage their cash flow by slowing payments to their suppliers to make it through the holiday season.

With a mix of news hitting every day it is fair to say the economy is trying to find a steady course. The most recently released October 2009 Manufacturing ISM Report On Business supports the case of economic recovery as manufacturers – the early stage supply chain stakeholders — have increased output ahead of the holiday season and appear to be more confident in consumer spending. Yet today’s bankruptcy of CIT and concerns about consumer spending argue that we are in for a longer recovery. The next few months of data will bring further clarity.

A few highlights from this month’s SCI data:

• Comparing the September 2007 (6.8 days) numbers to the September 2009 (9.56 days) numbers and you’ll see that the Supply Chain Index is ~40% higher
• Commercial accounts receivable debt greater than 30 days past due is also 50% higher than September 2007
• We’ll be watching closely to see if the 2009/2010 holiday season matches past cycles, with DBT quickly dropping back to pre-holiday levels

Troubling Statement #1: “Never Pay Your Vendors On Time”

This is an unfortunate headline in an advice column. Instead of focusing on the true problem (“…but payment on outgoing invoices isn’t getting collected for months. One large organic foods chain owes six figures on an order it placed six months ago”) of the invoices that they are owed to this small business, Mr. Cloutier is focusing on spreading cash flow problems to other businesses. Shouldn’t they work with their customers to speed payment and/or perhaps consider putting these customers on cash only plans until the payment pattern improves? The true issue here is a collections problem. There is definitely a cash crunch for many small businesses, and I feel their pain, but this is not the way to solve their problems—ultimately it will only make things worse.

Troubling Statement #2: “Wendy is balking at the idea because she is under the false impression that paying on time will help her maintain a good credit rating. She also wants to keep her good relationship with vendors. But this has nothing to do with her credit score.”

This is totally incorrect. Wendy is right to challenge Mr. Cloutier because her instinct is right on the mark. If you slow or stop your payments to your suppliers it will most definitely impact your business credit rating. Payment behavior is how these scores are generated at all of the major bureaus. That fact is, suppliers will cut you off and will put you on cash terms if you drag your payments too far out.

Troubling Statement #3: “Same goes for your landlord. Pay him late, too. He’ll scream his mortgage is due, but that’s not your problem. He won’t evict you because he needs the rental income, especially in these times. Send him a check at the end of the month, not the beginning. He’ll soon get used to it.”

Again, bad advice. If you start paying all of your core bills late, this is a major signal that you are struggling and close to failing. Trade credit for small businesses is especially hard to earn and establish. If you slow payments across the board this could be extremely damaging in the long run. The pass-the-buck tone by Mr. Cloutier is just appalling. If every company in America started doing this, the whole US economy would grind to halt.

George Cloutier’s Advice: “Over the years, my turnaround firm has found millions of dollars in extra cash for companies by delaying payments this way. In good times and bad, it’s simply good business practice to stretch out payables…All the big retail chains do it, so why shouldn’t you?”

He is right. Big companies do use their market weight to force unreasonable terms on their suppliers, but is this really the message that we want to send? Let’s tell every business owner in the country to just ignore the terms of their invoice and pay late. While we are at it, let’s just stop paying our mortgages and credit card bills, too. The banks are hurting. I’m sure they’ll understand.

The fact is there is a huge difference between a big company and small company when it comes to credit and credit evaluation. Many business credit reports on big companies do in fact reflect poor payment behavior. But when it comes to credit analysis, a large public company benefits from public financials, large bank credit lines, public debt and public ratings that ultimately prove their credit worthiness. A small business does not have this luxury – they will be judged on their payment history, their trade references and other public records. If you stop paying your suppliers in timely manner, your credit report and trade references suffer, and you may find that your well earned trade credit has dried up. Keep up the pattern and you may even end up with a lien or two filed by a supplier.

Small businesses have enough to worry about and getting bad advice from a supposed expert, shouldn’t be contributing to their worries.

What do you think? Does his column bug you as much as it does me?

“This guy is part of the problem we have with our economy. Wendy and Ted need to stick to their business ethics and demand others do the same. If I slow pay my suppliers, they stop selling to me and send me down the street to the higher priced vendor to slow pay them. If you want good prices, you have to pay your bills.”

“Yeah no wonder the country is in a s#@t storm.”

“This is the worst business advice I have ever read. Period. You want to know the number one problem our business has in this recession? Getting paid in a timely basis for work performed. Want to know why? Because of fine, upstanding people like “Wendy and Ted” who don’t pay their bills on time. I honestly can’t believe Business Week considers this to be great advice.”

“I really couldn’t believe what I was reading…Pay promptly is the best way..and I agree with all the ones who have written opposing the practice of delaying payment..I have been in business a long time …if start off doing it right ..it will work..I disagree with delaying payment unless it is absolutely necessary.”

“Congratulations on writing a column that illustrates one of the many reasons this country is going down the toilet.”

“I agree with everyone else here. This is an atrocious way to conduct business. This will eventually lead to mass layoffs of people. I pay all my bills on time. And if my customers don’t pay in time then I cut them off credit as well. No wonder the banks have cut so many businesses off of credit.”

There is certainly some passion there. As I have blogged about in the past, there is a rough “dual credit crunch” that is squeezing small businesses and hurting their cash flow.

What do you think? Is slowing payments as form of a short-term loan a valid technique? Or is it one of the primary reasons that we are still in a recession?

“How do we go about contributing credit information about companies? If we run into problems with a customer, we would want the market to know what problems with payment we had.”

The standard and historic answer that most credit bureaus like Cortera would give is this:

“Please send us a cut of your monthly accounts receivables information according to our standard format and we’ll incorporate it into our database.”

This is the way it has always been. Sounds simple enough – right? Well, it is not. For most companies this task requires some kind of technical expertise to get that information out of their accounting system and into a format that a bureau can ingest and then report back on a credit report. Plus, this can take weeks by the time the request has been made to IT and then the information actually shows up on a credit report. In the mean time the debtor could continue to be granted credit without the greater market having any knowledge of their payment problems. Obviously we are talking about reporting on customers that are well past due and are not likely to be a customer again – in common terms we are talking about deadbeats.

Of course my answer is different now.

My response back:

“We just launched a new free website that makes reporting on a specific company and telling the market about them very easy. You can go to Cortera’s community ratings website and from there you can search for the business that is giving you trouble and use the “Rate Company” tab to provide your payment experience and comments.”

Within 5 minutes he was able to report on the two customers that were giving him trouble.

Have a few customer (or should I say ex-customer) deadbeats in your portfolio? Tell the world about yours and who knows you must just catch one reported by another member before you get in too deep.

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.