show that there are still hurdles to overcome. Other sectors such as Transportation are also under pressure. According to the latest Credit Managers’ Index (CMI) issued by the National Association of Credit Managers (NACM) in the US, collections activity has been buoyant. Accounts placed for collection have been on the rise since July, while the rate of bankruptcies has also increased, albeit marginally. The number of applications being made by one business to another for credit – and subsequently rejected – has risen, although perhaps not surprisingly given the current economic woes. Conversely, the amount of credit extended in successful applications has improved, so fortunes are mixed and the picture somewhat muddy. In the first half of 2012, the average Days Sales Outstanding (DSO) across all sectors was approximately 57 days, but for durable goods and services 30-day terms are fairly common. In some instances, such as for substantial sales or special customers, these terms can extend up to 90 or even 120 days, while the other extreme can be found in the perishables market, where terms are often as short as seven days in order to cover the risk of spoilage. Some companies offer incentives and reductions to encourage prompt payment but – as with the UK – not many buyers take advantage of these offers. Other factors coming into play, particularly reinforced by the lagging economy of latter years, have introduced a dynamic whereby some businesses have begun to take a more ‘relaxed’ approach to invoices. It is now not uncommon to hear of businesses that regularly extend terms without further discussion with their suppliers, and this is undoubtedly a worrying trend. Businesses are less inclined to the concept that invoices are ‘due now’, not appreciating that 30-day terms or indeed any period of credit is a privilege not a right.
Generally speaking, American businesses stick to pre-established terms of trade, but that’s not to say that the cracks are not beginning to appear.
Perhaps not surprisingly it is the larger companies that are much more likely to take advantage of their suppliers’ good nature and their dependence on larger customers for trade. Cases have been reported of corporations that will only pay invoices after a minimum of 120 days and not before, regardless of any terms a supplier may wish to agree. Some companies have also been known to renegotiate the value of an unpaid invoice at a very late stage in the transaction. On the one hand this might be to protect their own credit position, and may be considered good credit management practice; on the other, it might suggest issues with cashflow that might lead to more serious difficulties and greater supplier risk. Usually, the first sign that a US company may be in financial difficulty is the same as everywhere: the supplier does not receive payment or indeed any response when they attempt to chase the due
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