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ACCOUNTING

Benchmark: Farewell to Fast Payment?

A chart displaying DB data that suggests larger companies are not necessarily the quickest customers to make payments.
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Payment Performance Index (by quarter)

Company Size 1993 1994
(number of employees) Q1 Q2 Q3 Q4 Q1
500+ 1.1 -0.5 -0.5 -4.9 -5.5
50-499 -1.1 -1.7 -3.8 -6.3 -6.6
20-49 -4.4 -4.7 -5.6 -7.3 -6.9
1-19 -7.7 -8.2 -8.9 -10.4 -9.6
National average -5.7 -6.2 -7.2 -8.9 -8.5

Large corporations have typically paid their bills more quickly than small companies, so for entrepreneurs concerned about protecting cash flow, large customers have been more desirable. But that situation has changed, according to a recent survey by Dun & Bradstreet Information Services. Its Payment Performance Index, which gauges the change in the speed at which businesses pay their bills (the larger the negative number, the slower the payment performance), shows that over the past year the payment performance of large companies has deteriorated.

During the most recent two quarters surveyed, their late payments are so marked that in the assessment of Lawrence Winters, an assistant vice-president at D&B, "the gap is narrowing between large and small companies. Our latest survey found that small businesses have been paying their bills faster while large corporations have slowed down."

Winters recommends several measures to defend cash flow. "Maintain a balance between different size customers," he says. "Don't just get enamored of Fortune 500 clients. And remember to check out the payment patterns of every customer, big or small." He urges small-company owners to be honest with their new customers about their reliance on payments within 30 days. "Don't tell just the payables clerk," says Winters. "You've got to get that message across at the highest level you can reach."

Source: Twelve-Month Payment Performance Index, Dun & Bradstreet Information Services, Parsippany, N.J., June 1994.

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Last updated: Nov 1, 1994




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