Builders and remodelers paid their debts to dealers about four and a half days more slowly last month than they did on average in 2008, a ProSales survey finds.
The 165 pro-oriented dealers participating in the online poll (see summary) said their average days for accounts receivables widened to 49.76 days in August from 45.16 days in 2008. The average varied by region and dealer size, but it went up in all cases except for dealers with $100 million-plus in annual revenues, where it was essentially unchanged.
Dealers vary substantially regarding when they expect to be paid. Over half those responding expected a payback in 30 days, a fifth wanted their money in 45 days and over a third permitted up to 60 days. When looked at in five-day increments, the stretching out from 2008's payment rate appears most pronounced at about the 25- and 65-day points.
Nearly seven out of 10 said customers have asked to place the balance of their open accounts on credit cards, dealers said in the survey, conducted over the last week of August and first week of September.
Roughly four out of 10 dealers said they have increased their bad debt reserve this year and 45% have changed their accounts receivables policies in the past year, typically by cutting off accounts faster and pursuing collections more quickly. "Through the years we have somewhat 'financed' our customers, allowing them to stretch out balances on their accounts until they closed on loans or sold the houses," wrote a manager at one dealer in the Deep South. "We now close accounts that hit 60 days until balances are paid."
This is the third consecutive year in which ProSales has asked dealers to compare their A/R days in August with the average from the year before. While the survey population differed from year to year, it's notable that each year the dealers said things were getting worse, but they remembered getting paid more quickly the year before than they had reported in that year.
For instance, in August 2007 dealers said their A/R days averaged 46.62, but when asked about average 2007 payments the next year, the dealers said they got paid in 42.67 days. And dealers said in August 2008 that their average A/R days that month was 47.27 days, whereas this year the dealer respondents said their 2008 average was 45.16 days.
Nevertheless, the 49.76-day average this year is the highest in the survey's history.
"In today's market, even our traditionally good paying accounts are paying slow, as most companies have much less to do and are turning less revenue," a one-step dealer wrote. "Banks are slow to lend and have cut ties with many customers. Subcontractors and builders (big and small) are all feeling the pinch."
The head of one yard in the mid-South said his average A/R days actually has improved, but he added: "I attribute this to the fact that the risky builder has lost his ability to borrow money, and those builders that are left are the better business people. Also, as residential has declined, commercial has increased, resulting in less risky credit customers."
But other dealers said they are continuing to see cases in which they suspect builders are borrowing from one account to pay for another, or else are declaring bankruptcy and/or going out of business.
"The main problem is that there are way fewer sales," the president of a yard in Ohio declared. "That is a bigger problem than collections."