Last week, our Chief Executive Officer Jim Swift spoke with a large group of beverage distillers about the financial implications of payment and purchasing behaviors within the supply chain; insights which can vary considerably based on the type of business. Understanding how, what, when and where spend is taking place across industries and geographies is an important indicator for predicting opportunity and risk in trade credit. Knowing which categories are most likely to pay late or how your industry is trending provides another dimension to credit decisions, risk management and collections.
Essentially, industry matters so we analyze it. Our network of over 20M business locations representing over $1.3 trillion in annual B2B transactions factories in variances across 45 industry categories into its risk scoring mechanism, illustrating patterns and trends about B2B purchases and payments. The truth is, not all suppliers get treated the same. For example, did you know the Industrial Supply category has filed the highest number of bankruptcies in 2018? Transportation is second. The Food & Beverage sector is experiencing an increase in delinquent payments this year and represent 13.3% of overall spend in B2B trade credit. The Construction industry is getting paid much slower than other categories
Getting paid fast is nice, but as we dig deeper into the data, we find that basing a company’s credit worthiness on one metric is surely not enough. When it comes to risk scores of key supply chain industries, i.e. the chances they’ll pay, in June Manufacturing Materials and Building Supplies carried the highest risk whereas Industrial Supply and Food & Beverage received the best scores. Locations and size of the companies within an industry matter too. Larger companies with higher balances pay faster while those located on the coasts tend to have a higher risk for delinquency.
If we move away from industry to industry comparison, and dig even deeper into each one individually, we find that size of balance and geography also matter. Larger Food & Beverage customers pay faster than small ones, with customers holding a monthly balance of $11,600 or more paying 4.8 average Days Beyond Terms (DBT) and those with a monthly balance of less than $6,000 paying 20.8 average DBT. Quite large differences in time and balance size. These are important variances to know if your job involves making credit decisions and managing cash flow. What can you do about it?
We suggest having your portfolio analyzed using the Cortera Credit Score which factors in industry risk to get a snapshot of your customers, partners and suppliers with this added dimension today. Then conduct monthly portfolio reviews to detect changes in risk within your accounts and accessing industry-specific views for identifying new trends and patterns.
Download our Industry Monitors here. Call 855.667.8594 for more information.