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Total Late A/R Improves, but Past Dues are Only Getting Older (NACM Blog)
October 9th, 2009
When the economy is going strong, more often than not, suppliers are receiving what’s owed to them in a timely fashion. Commerce chugs along and cash flows stream smoothly. As the economy sags and it takes longer and longer for retailers to get products off the shelves and out the door, they begin to drag their feet on invoices. Suppliers and manufacturers then find themselves in a pinch and the pangs of delinquency trickle their way through the entire supply chain.
“With the supply chain, you’ve got the flow of goods between manufacturers and wholesalers and retailers and the transportation companies that move everything. And the flow of money—in that particular segment of the economy—is really important,” stated Jim Swift, CEO, Cortera, Inc. “If I’m a manufacturer, I need cash to buy more ingredients and more raw materials in order to increase my production, my inventory and my shipments.”
Insurance companies and financial institutions like banks can survive more easily if customers begin to slow pay. But for manufacturers and suppliers, growth is culled and revenues curtailed until payments for past invoices are received. Over the past two years, there has been a sharp increase in delinquencies, which has been accompanied by a sharp uptick in accounts sent for collection. Days sales outstanding (DSO) has widened as more and more companies began hording cash, uncertain of the economic future of the nation, let alone their own industry. But, as other indexes have also begun to spy, Cortera’s Supply Chain Index (SCI) has seen payment conditions throughout the supply chain have become increasingly more favorable over the last several months.
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