August 27, 2008 / 4:57 PM / 10 years ago

Corporate America taking longer to collect: study

BOSTON (Reuters) - Corporate America is having the hardest time getting its customers to pay their bills since the last U.S. recession in 2001, according to a study released on Wednesday.

Buildings in downtown Houston reflect the light of a setting sun October 15, 2004. REUTERS/Mike Blake

The 1,000 largest U.S. public companies in 2007 took 41 days on average to collect payments from their customers, up from 39.7 days a year earlier and 39.2 days in 2001, the study by consultancy REL and CFO Magazine found.

The change reflects customers who are trying to guard their cash flow in the face of a global credit crunch and suppliers who are scrambling to grow their revenue in the face of slowing demand in many industries, the consultants said.

“There is pressure from people just looking to pay their bills later,” said Peter Rabjohns, senior director at REL, a consulting company that focuses on cash flow. “Longer terms are being given to make sales. Obviously that’s a dangerous situation when you have the credit crisis.”

The analysis is based on data available in public filings with the U.S. Securities and Exchange Commission and excludes the Detroit automakers because their results have historically been unusually volatile, REL said. The analysis was conducted from April through August.

TOBACCO HARDEST HIT

The hardest-hit industry was tobacco. Makers of cigarettes and other tobacco products, including Altria Group Inc and UST Inc, saw a 30 percent surge to a median of 26 days to collect.

Next came the oil, gas and consumable fuels industry — such companies as Exxon Mobil Corp and Chevron Corp — with the sector up 21 percent to 42 days.

The third biggest increase came among makers of electronic equipment and instruments — including Amphenol Corp and Vishay Intertechnology Inc — collectively up 15 percent to 63 days.

Companies that sell consumer goods at wholesale were most affected as fears of a recession caused shoppers to cut back on discretionary purchases and retailers become more protective of their cash flow, said analysts at REL, a unit of The Hackett Group Inc.

In addition to reflecting customers who are negotiating longer payment terms or simply delaying paying their bills, the overall increase is influenced by U.S. companies generating more sales abroad, where longer payment periods are common, Rabjohns said.

Companies are tempted to allow their customers to drag their heels on payments in the early stages of an economic downturn because it helps keep revenue up, but in the end it hurts a business’s bottom line, said Karlo Bustos, financial analyst with REL.

“You need to be focused on where cash is coming in, which is the most important thing today,” Bustos said. “The credit crunch in the U.S. has made it very difficult for companies to buffer themselves on the cash collection cycle.”

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