Cash Management Survey Shows Service Sector Down
The whirlwind that hit the housing and credit markets appears to be seeping down into business credit efforts -- no doubt including sweeping contractors.
adapted from a report in My Company Chronicle, January 8, 2008
A major credit index dropped to its lowest point in its more than five year history. According to analysis from leading trade credit insurer, Euler Hermes ACI, the trade credit markets are now facing the same problems as the rest of the country's credit markets as more companies find it difficult to pay their bills due to insufficient cash flow.
In his monthly commentary regarding a national survey of credit managers in the manufacturing and service sectors, Euler Hermes ACI Chief Economist, Daniel C. North, said the survey data showed a decline for the fourth consecutive month in December and dropped to a record low. Six of the 10 survey components fell, including a 4% drop in dollar collections. "While the manufacturing index actually gained slightly, it was overshadowed by a sharp loss in the service index," he explained.
"The deterioration in the combined index matches that of other major indicators in the macroeconomy, including disappointing holiday sales, a weakening employment market, accelerating declines in housing prices, downgrades of banks and insurers, plummeting consumer confidence, and a rapid increase in delinquencies and defaults on many types of credit."
The service sector index fell 2.3% in December on a seasonally adjusted basis, led by sharp downturns in sales and dollar collections. It was the seventh decline in sales in the past eight months. North said the data suggests that businesses are experiencing an unpleasant combination of slower cash flow, and expectations of slower consumer demand.
"Once again the housing market continues to wreak havoc in the service sector," he explained. "One survey participant described a 'residential housing crisis' and 'a continuing problem of buyer walk-offs.' Another respondent reported that 'past dues are higher and customers that were robbing Peter to pay Paul are feeling the unavailability of cash.'"
North said survey respondents confirmed that business bankruptcies across the country are continuing to rise, and that increase -- coupled with declining sales and increased dollar amounts placed for collection -- show that the nation's business conditions are indeed worsening.
"It would appear that trade credit managers are now encountering the same difficulty found in other credit markets -- the inability of debtors to pay their bills due to insufficient cash flow. The survey data suggests that indeed more business than usual are having a tough time surviving in this environment as sales and cash flow dry up," he concluded.
Analysis by WorldSweeper.com's Editor: While this information is based on macroeconomic data, which means it may have little bearing on any individual contractor, knowledge of the current cash-flow crunch means you can take preventive action to keep it from affecting your business.
You may see several situations occurring in your local marketplace. Among these is a movement of insolvent potential customers trying to move from sweeping contractors where they haven't paid their bill. This makes it more important than ever to run credit checks, get current financial references and/or talk directly with their previous sweeping contractor and other suppliers.
On the cash flow side, consider being more aggressive than usual with customers whose payments are lagging behind your stated credit and payment terms. Your big threat is not continuing to sweep once they are behind. Don't wait until you are significantly behind in payables from a client before you discontinue sweeping for them.
The information for this article was provided by Euler Hermes ACI, which is North America's oldest and largest provider of trade credit insurance and accounts receivable management solutions and is the US subsidiary of the Euler Hermes Group. For more information, visit www.eulerhermes.com/usa.
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