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Supply Chain Payments Do an Abrupt About-face (NACM eNews)
November 10th, 2009
Matthew Carr, NACM staff writer
Almost all indicators over the last few months have demonstrated that the economy is pushing toward recovery—albeit, sometimes, quite slowly. Dragging down the emotional outlook, unemployment this month topped 10% for the first time since 1983, though that shouldn’t really have been all too surprising. Predictions have for some time pointed toward a double-digit unemployment rate before the year’s end.
Now, the holidays are no longer on the horizon; they are already here. Seasonal employment is being eyed to save many families, while retailers are bracing themselves for the hopeful return of the U.S. consumer. Holiday advertising began months ago, just after the back-to-school sales ended, and the economy is hoping to see some significant improvements in consumer spending this shopping season.
The holiday season also means it’s a bad time of year for receiving timely payments. Manufacturers, retailers and suppliers typically take on additional trade credit debt as they prepare for the holiday shopping season. This has been clearly evident in Cortera’s Supply Chain Index (SCI), which has seen a spike in late account receivables (A/R) each holiday season every year of the index’s existence. So, it was of little surprise that after four consecutive months of improvements, the SCI saw slow payments in the supply chain tick upward in October.
However, that’s not the entire story.
At first glance, the sharp increase seems indicative of the seasonal days beyond terms (DBT) that Cortera sees every fall and winter as companies dramatically slow down payments to suppliers as they try to manage their capital for the holidays. Unfortunately, this slowdown is normally seen in November or December, and then quickly recedes after the New Year when companies are sitting on a cache of cash and begin paying off debts again. This year, the arrival of the winter spike is two months earlier and the analysts at Cortera are scratching their heads.
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