Industry Payment Analysis Report Q1 2022

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  3. Trend Report: Industry Payment Analysis Q1 2022
Chapter 1

What’s in the report and what is it based on?

The Creditsafe Payment Analysis Report is a quarterly publication that gives you key insights into how well businesses are paying their bills both across the country and in different industry sectors. The report will help you understand key industry trends, while also allowing you to benchmark your company’s financial health against other businesses in your industry. The report will also provide useful context to help you determine the risk levels associated with doing business with customers – and set the best credit terms to keep your cash flow healthy and grow your business long-term.

Our data comes from over 9,000 trusted and official sources and is updated up to 5 million times a day to include credit scores and limits, financial information on up to three years of annual accounts, bankruptcies, judgments and lawsuits. We also have a reputable track record of predicting up to 70% of business failures 12 months in advance. The Creditsafe Trade Payment database now holds more than $10 trillion of information in value terms based on over 320 million payment experiences.

The data is based on a Days Beyond Terms (or DBT) score derived by Creditsafe for each business across the country, which is aggregated by industry to provide a key indicator of how well companies pay their bills. As a rule of thumb, a lower DBT score indicates that a company is a more reliable payer. The report breaks down this information across all key industry sectors based on their two-digit NAICS code.

Creditsafe’s team use the latest analytics tools and methodologies to convert this raw data into a true DBT score. This process ensures that the score is significantly more responsive than a simple average as it gives greater significance to payments that are severely delinquent or have relatively large dollar values. In effect, the larger and later a payment is, the greater detrimental impact it will have on the overall DBT. You should also be aware that a full DBT score may change once an unpaid invoice is more than 91 days beyond terms, meaning that a full quarter’s DBT may be adjusted once all outstanding invoices are settled or fully aged.

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Executive Summary

At a national basis and across most industry sectors (analysed using 2 digit NAICS codes), DBT continues to trend downwards which is positive news. However an exception to this is within Real Estate which saw a large spike of late payments in Q2 2021, which has translated into a negative impact on DBT as a result. It is also important to note that while we are seeing a decrease in DBT, the percentage of late payments is increasing. While both indicators behave relatively independently, the percentage paid late is often a warning sign of challenges to come. Percentage paid late is also particularly pertinent to SME businesses and contractors as often it’s these businesses that tend to be a lower priority when large companies attempt to manage their cash flow.

This chart shows the overall trend in DBT at a national basis across the US. It is encouraging to see how the score has improved over the past year suggesting something of a return to normal after the worst of the pandemic. However the stabilization over the last three quarters can be seen as a matter of some concern as it would seem that there is a level of acceptance in bills being settled more than 20 days beyond terms. 

By comparison the percentage of bills paid late has increased across this period, and although this is by a relatively low amount it will be interesting to see if this translates into issues at a DBT level in the future. Again in overall terms we can see that nearly a quarter of all invoices in the US are paid late. This needs to be improved to ease pressures all through the supply chain. Both of these national indicators will give you a basis for comparison when looking at individual industries’ indicators.

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Agriculture (11)

This industry comprises of establishments primarily engaged in growing crops, raising animals, harvesting timber, and harvesting fish and other animals from a farm, ranch, or their natural habitats. ‘Crops’ includes grains, fruits, vegetables, plants, tobacco, nuts and some other farmed products like sugar and cotton.

The industry continues to have a DBT significantly below the US average. This has further improved across the period, which is a positive sign for the outlook of the industry. It is also no surprise that given the biggest supplying industry to agriculture is the wholesale trade; similar DBT improvements have been seen across the wholesale sector. While slightly higher than a year ago, the number of bills paid late also remains refreshingly low.

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Mining & Oil (21)

The Mining, Quarrying, and Oil and Gas Extraction industry comprises of establishments that extract naturally occurring mineral solids, such as coal and ores; liquid minerals, such as crude petroleum; and gases, such as natural gas. The term mining is used in the broad sense to include quarrying, well operations, beneficiating (e.g. crushing, screening, washing, and flotation), and other preparations customarily performed at the mine site, or as a part of mining activity.

Surprisingly given the industry’s historical notoriety for late payments, the average DBT across the industry remains below the US average. It’s also positive that this has been consistently trending downwards, perhaps reflecting the lobbying from the OGA (Oil & Gas Authority) urging the industry to improve its performance in this area. However, nearly 40% of bills are still being paid late. 

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Utilities (22)

The Utilities industry is comprised of establishments engaged in the provision of the following utility services: electric power, natural gas, steam supply, water supply, and sewage removal. Within this industry, the specific activities associated with the utility services provided vary by utility: electric power includes generation, transmission, and distribution; natural gas includes distribution; etc. 

The already strong average DBT is continuing to trend downwards rending downwards which is a positive sign while the number of bills being paid late is now just above the national average.

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Construction (23)

The Construction industry is comprised of establishments primarily engaged in the construction of buildings or engineering projects (e.g., highways and utility systems). Establishments primarily engaged in the preparation of sites for new construction and establishments primarily engaged in subdividing land for sale as building sites also are included in this industry. Construction work done may include new work, additions, alterations, or maintenance and repairs.

The significant improvement in DBT that we have seen over the last year is a positive and encouraging sign although the percentage of bills paid late is fairly static. While the main suppliers to construction being fellow businesses sharing the NAICS 23 code the DBT improvements with be amplified for those that primarily trade within the sector.

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Manufacturing (31-33)

The Manufacturing industry is comprised of establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufactured products is considered manufacturing. Establishments that transform materials into new products by hand or in the worker's home, and those who sell and make products from the same premise (such as bakeries, candy stores, etc.) may also be included in this industry. 

Over the past year, we have seen DBT dropping by five percentage points or a significant 21% in absolute terms. Despite global supply chain issues, there has been an increased demand for manufacturers to ramp up production following the constraints of the pandemic. This growth, combined with retail buyers placing advance orders to avoid supply shortages, has helped drive this improvement. As money flows into manufacturing, we also have that the percentage of bills being paid late remains below the national average.

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Wholesalers (42)

The Wholesale Trade industry is comprised of establishments engaged in wholesaling merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The merchandise described in this industry includes the outputs of agriculture, mining, manufacturing, and certain information industries such as publishing. Wholesalers sell merchandise to other businesses and normally operate from a warehouse or office, not intended for walk-in traffic or the general public. 

Wholesalers supply into many industries and, unsurprisingly, have benefitted from the DBT improvements across many of these. Many businesses have agreed to advance payment terms in order to secure stock, which has also driven this improvement

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Retail (44-45)

The Retail Trade industry comprises of establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The retailing process is the final step in the distribution of merchandise; retailers are, therefore, organized to sell merchandise in small quantities to the general public. This industry comprises two main types of retailers: store and nonstore retailers.

Although the rate of improvement has slowed, DBT is still getting better in the retail sector and has noticeably improved since this period last year. Given that many retailers were mandated to close during the pandemic and have now reopened, they are benefitting from the resulting growth and are more able to meet their obligations. DBT has improved, and the proportion of bills paid on time remains higher than average. 

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Transportation & Warehousing (48-49)

The Transportation and Warehousing industry includes businesses providing the transportation of passengers and cargo, scenic and sightseeing transportation, warehousing and storage of goods, and support activities related to modes of transportation. Establishments in these industries use transportation equipment or transportation related facilities as a productive asset. The equipment used depends on the mode of transport which includes rail, water, road, and pipeline. 

Following a significant spike in DBT back in Q2 2021 as a result of the pandemic-related challenges, combined with underlying stresses on the industry, we can see a continuing improvement in DBT as both passenger and freight numbers return to a more normal level.

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Media (51)

The Media (information) industry is comprised of establishments engaged in: producing and distributing information and cultural products; providing the means to transmit or distribute these products as well as data or communications; and processing data. The main components of this industry are publishers (including software); the motion picture and sound recording producers; broadcasters; the telecommunications industries; data processing industries; and the information services industries.

With a broad exposure to most other industries, the media sector continues to perform in line with the national picture. While DBT has improved and remained stable into 2022, it is still above the US average; however, the number of bills paid on time is improving.

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Financial Services (52)

The Finance and Insurance industry is comprised of establishments primarily engaged in financial transactions (transactions involving the creation, liquidation, or change in ownership of financial assets) and/or in facilitating financial transactions. Three principal types of activities are identified: Raising funds by taking deposits and/or issuing securities; pooling of risk by underwriting insurance and annuities; and providing specialized services facilitating or supporting financial intermediation. Monetary authorities charged with monetary control are included in this industry.

DBT has stabilized at a lower level following the peak of the pandemic and continues to show improvement. With most financial institutions holding sufficient reserves to meet their obligations, the sector avoided the need to reschedule payments during the pandemic and continues to make fairly timely payments.

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Real Estate (53)

The Real Estate and Rental and Leasing industry is comprised of establishments primarily engaged in renting, leasing, or otherwise allowing the use of tangible or intangible assets, and establishments providing related services. The major portion of this industry comprises establishments that rent, lease, or otherwise allow the use of their own assets by others. This industry also includes establishments primarily engaged in managing real estate for others, selling, renting and/or buying real estate for others, and appraising real estate.

Against the trend we have seen on a national basis, and in other industries, Real Estate has seen average DBT continue to increase following a decline in the fall of 2021. In absolute terms, DBT is now very much in line with the national average, but it remains to be seen if this upward trend continues through 2022. With more bills paid on time than the national average, it is to be hoped that the trend can be reversed.

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Professional Services (54)

The Professional, Scientific, and Technical Services industry is comprised of establishments that specialize in performing professional, scientific, and technical activities for others. These activities require a high degree of expertise and training. Activities performed include offering services of: legal advice; accounting; specialized design; computing; consulting; research; advertising; photographic; translation and interpretation; veterinary; and other professional services. 

Reflecting its broad engagement with the rest of the US economy, the professional services sector continues to show an improving DBT score and a similar level of bills paid on time. This is particularly encouraging as there are many smaller operations active within this sector.

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Healthcare (62)

The Health Care and Social Assistance industry is comprised of establishments providing health care and social assistance for individuals. The industry includes both health care and social assistance because it is sometimes difficult to distinguish between the boundaries of these two activities.

Average DBT has fallen throughout 2021 and is currently relatively stable. Although a high proportion of payments made in this industry remains late, the DBT is below the US average, showing that the value or lateness of those payments is relatively low.

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Hospitality (72)

The Health Care and Social Assistance industry is comprised of establishments providing health care and social assistance for individuals. The industry includes both health care and social assistance because it is sometimes difficult to distinguish between the boundaries of these two activities.

The industry has been above-average for DBT in recent periods, almost certainly due to a lack of income caused by mandated closures during the pandemic. With many establishments now reopened and cash flow recovering, we can see an improvement in both DBT and the percentage of bills paid on time. 

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Public Administration (92)

The Public Administration industry consists of establishments of federal, state, and local government agencies that administer, oversee, and manage public programs and have executive, legislative, or judicial authority over other institutions within a given area. These agencies also set policy, create laws, adjudicate civil and criminal legal cases, and provide for public safety and for national defense.

As might be expected, the average DBT of government agencies is significantly below the US average and remains stable; however, the overall percentage of bills paid late is higher but obviously not significantly so.

Having access to credit risk data is vital to protecting your business from unreliable, late payers and managing your cash flow.