Supply chain cash flow has slowed, reversing a four-month trend, according to an October 2009 Supply Chain Index (SCI) report from community-driven business information company Cortera.
The report, a monthly index of accounts receivable (A/R) activities for manufacturers, distributors and wholesalers, retailers, services, and transportation companies, measures payment activities of about 350,000 businesses.
The October SCI report reveals the slowing of payments and related cash flow throughout the overall supply chain, on the heels of four straight months of improving conditions. This could represent an early arrival of a similar seasonal pattern seen over the past couple of years as manufacturers, suppliers and retailers take on additional trade credit related debt in advance of the critical holiday shopping season.
The Cortera 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).
These results are typical before the holiday season, says Alex Cote, vice president of marketing at Cortera. “But you don’t usually see such a slowdown in payments until the end of October.” The data for this index is through the end of September. “So it appears that we might be looking at an earlier than usual arrival of such seasonal behavior.”
There was a more pronounced spike last year in the data though the end of October (the November 2008 report), Cote says, “and this was compounded by the coinciding financial markets’ meltdown slamming businesses in October 2008.”
The October SCI report for 2007 showed improving conditions based on faster rate of payments between stakeholders, Cote explains. “The November report showed a similar and expected reversal as payments slowed in advance of the holiday season.”
In both cases, he points out, such slowing peaked in December and then fell in January “as income from holiday sales fueled payments through the supply chain and inventory levels returned to nonholiday norms.”
The rate of payment provides an indicator into supply chain stakeholders’ confidence in sales, Cote explains. Higher confidence translates into faster payments, or less hoarding of cash.
So the trend prior to this month’s report was a positive sign for the economy, “as we saw four consecutive months of improving payment, A/R conditions,” he notes. “What makes this month interesting is that we’re either seeing the early arrival of a seasonal trend or we’re seeing some erosion in the confidence that built up over the past four months.”