“While there is more accounts receivable stress than a year ago, our data suggests that confidence in sales may be starting to return. The increasing rate of payment yields more fluid cash flow for all stakeholders in the supply chain – cash that is so desperately needed to fuel organic business growth and a sustainable recovery.” –Jim Swift, president and CEO of Cortera
Here’s some really welcome data in time for the long holiday weekend: cash flow within the supply chain is increasing and is heading back towards pre-recession levels, according to data gathered by information firm Cortera.
While it’s certainly not time to pop any champagne bottle corks, this is a very positive sign especially for truckers, as faster payment of freight bills translates into monies to pay off equipment, fund salaries, and cover a myriad of other expenses.
“Just as the flow of goods is critical to the health of the U.S. economy, so too is the flow of cash through the supply chain critical to keep those goods flowing,” Jim Swift, Cortera’s president and CEO, told me.
“While the flow of goods is driven by sales, the flow of money is largely influenced by a company’s confidence that those sales will continue," he said. "Strong confidence in sales normally spurs companies to invest in growth initiatives. On the other hand, a lack of confidence in sales causes companies to conserve cash and slow payments to suppliers.”
Cortera’s Supply Chain Index or “SCI” tracks late payments against agreed upon terms, measuring late accounts receivable (Late A/R), excessively late accounts receivable (Late A/R >30 days), and overall average days beyond terms (Average DBT). All three measures showed a spike in starting in October 2008 that directly coinciding with the financial markets meltdown and peaked in December of 2008 – going from a little over 7.2 days average DBT to nearly 10.8 days average DBT.
But the firm’s September SCI now indicates a continuing reduction of A/R stress and improved cash flow throughout the overall supply chain, as well as the 4th consecutive month of decreasing receipt of invoice payments beyond terms (measured in average days beyond terms), with average DBT dropping to just north of 8.4 days. Not great, of course (hence the unwillingness on my part to break out the champagne) but far better than the sluggish rate of cash flow in the not-so-distant past.
Cortera’s SCI measures payment activities of approximately 350,000 businesses that include manufacturers, distributors & wholesalers, retailers, services, and transportation companies. And the recent positive trend in the firm’s SCI is good news for all of them, Swift noted.
“There are two parts to this increase in the supply chain cash flow rate” he explained to me. “The first is that, obviously, companies now have an improved ability to pay their bills faster. But second – and this almost more important – there’s a lot more confidence out there among companies that they will be paid; convincing them, in turn, to pay their bills faster. It’s this kind of psychology that is critical to the process of speeding up cash flow.”
So, at its roots, Cortera’s SCI is a measure of financial confidence – and its recent figures indicate that, while there is clearly more accounts receivable stress than a year ago, confidence in sales may be starting to return. And that is definitely a good trend any way you look at it.