11 November 2011
Businesses are finding it harder to collect their cash.
Statistics from the latest Credit Managers' Index (CMI - Q2 2011) have revealed the lowest headline score in four quarters, suggesting that confidence levels are falling and companies are finding it harder to collect their cash.
With a headline index of 51.8 to end June 2011 compared to 55.6 in the previous quarter, the index - presented to the ICM Think Tank - tracks very closely to the US CMI. Confidence within the Services sector has noticeably fallen (51.0 from 56.1) but has dropped only slightly in Manufacturing (53.3 compared to 54.9) although still remaining positive (ie above a score of 50).
In general terms, 'favourable' factors have fallen by 2.6 points to 61.4, with notable falls in sales (down 4.6 to 63.5), order book (down 2.6 to 62.3) and new applications (down 0.5 to 58.4). Unfavourable factors are now negative for the first time since the CMI launch. Days Sales Outstanding (DSOs) are down 11.5 points; overdues by 11.9 points; and bad debt provision down 3.3 points. Overall, unfavourable factors are 4.5 points down on the previous quarter at 47.6.
Statistics for both Manufacturing and Services are slightly at odds with the PMI figures and other similar indices, suggesting that the picture for Services is giving more cause for concern.
Philip King, Chief Executive of the ICM, says that the latest figures make uncomfortable reading: "The figures around DSOs are particularly alarming, since they suggest that businesses are finding it increasingly difficult to collect their cash. Where overdues have fallen it would also suggest that businesses are pushing out payment terms wherever possible.
"However, it is clear that we have not yet reached the bottom," he continues, "and there are a few slithers of positive news, namely that the overall score remains positive. The problem is that the full impact of the crisis in the Eurozone has not yet fed through to the Index, and so we expect further falls in the future."
The latest CMI prompted more than 750 responses from credit managers working in both the Manufacturing and Services sectors. The companies were broadly split by region, although slightly weighted to businesses in the southeast.
The Combined index over last four quarters is still 1.4 points above, with manufacturing faring better than services (3.6 point increase versus 1.3 point increase).
The CMI is a diffusion index, producing 'scores' of between one and 100 (typically in a range of 40 - 60). Ten equally weighted factors are included - three favourable and seven unfavourable - and the index calculated on a simple average of the 10 factors.
