April 21, 2020
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Large Businesses are Recovering as Small Businesses Continue to Hurt During the COVID-19 Pandemic
DSA Factors has been providing weekly reports of the state of small business in America during the COVID-19 pandemic based on our data. The trend over the past few weeks has been bad, and unfortunately this week doesn’t look any better for the small business community. Despite the continuation of stay-at-home orders and the cancelation of school for the remainder of the school year in many areas, the good news is that we are starting to see larger businesses recover, so hopefully the same may be true of small businesses in the not too distant future.
We have three different types of data points that we can look it, each which has its own advantages. First is we can look at credit approval requests which is directly tied to purchase orders. This data shows the impact of state-wide lockdowns in real time as businesses aren’t placing orders if they are no longer open for business. However, a purchase order is for a future transaction, so a decline in purchase orders equates to a decline in business in the coming weeks, but not necessarily right now.
The second data point is purchases, or in other words, how many receivables we have bought. This data is very similar to purchase orders in many ways but is generally about a week behind. More importantly however, it reflects an actual sale, meaning that the product shipped and the customer was willing to receive it. Where a purchase order may be canceled, an actual purchase is a finished transaction so the data is of higher quality.
Finally, we are looking at aging buckets for payables. This is perhaps the best measurement tool we have as it shows whether or not businesses are able to pay for the products we received. However, since customers are usually offered net 30 day terms, it means that this data is 30 days behind the other data. There have also been a large number of businesses, especially large businesses, who are now requesting extended terms from their vendors. In this situation the data gets slowed down even further. So while this might be the most relevant information, it takes much longer to see changes in it.
Purchase Orders
While purchase orders are still down, there are some reasons to be optimistic this week about the state of the economy. The number of credit approval requests this week were at 30% of what is considered to be average, which is a 20% increase over the previous week and comparable to the levels we saw at the end of March when there were still some very large parts of the country that had not shut down businesses yet. Even more interesting is that the volume of these purchase orders is at 78% of what is considered average, double where it has been for the previous two weeks. While this is certainly positive, it can be attributed mainly to the fact that we received several large purchase orders from some major retailers, many of whom do not operate in brick-and-mortar. So while major retailers may be feeling more confident, sadly it looks like purchase orders have pretty much dried up from America’s small business community. We can only hope that the confidence that major retailers have will rub off on small businesses as well.
Purchases
Just like purchase orders, the amount of purchases this week was also up significantly to 95% of normal levels. The previous two weeks purchases were at approximately 40% of normal levels. While this may appear to be wonderful news, we can again attribute well over half of this to large orders from major retailers as well as a need for purchase order financing to fund some of the orders mentioned above. Sadly, it looks like very few small businesses are making any purchases.
Payables
As we mentioned this is the most relevant data but it also takes time to see how the data is affected. While two weeks ago we saw a slight slowdown in payables, last week was the first time that we saw a major change, and this week continues the decline. There is no doubt that many businesses are taking longer to pay or are unable to pay. But it is also important to note that many of them are still able to pay. With better data available this week than in the previous two weeks we will dive a little bit deeper into this data.
There is both good and bad news to report this week. The good news is that it appears that major retailers are starting to pay their receivables. The percentage of receivables that are current (calculated by total dollars) has actually increased 2% this week, these receivables now account for 60% of total dollars. While normal would be around 78%, it is still promising to see a 2% improvement. Now a lot of this can be attributed to the large number of purchases we made this week (all of which would of course be current), but the total amount of outstanding receivables that are current has pretty much remained the same, we saw only a 0.1% decline in total dollars.
While current open receivables have remained steady, the total dollar amount of all open receivables has has actually dropped by 3.5% over last weeks amount. There was a 5% decline in total dollars in the 1-30 days late bucket, a 25% decline in total dollars in the 31-60 days bucket. While severely past due invoices remained about the same. Overall, the total dollars past due has declined by 8% which is a very promising sign that businesses are able to pay for their merchandise. That said, it should still be noted that while the total dollar amount of all outstanding receivables is down about 9% from where they would normally be, the total dollar amount of past due receivables is up about 40% from where it would normally be.
Of course, all of the above data combines both large and small businesses. Since large businesses place larger orders, looking at total dollar amounts is a good indication of how major retailers are doing. A better indicator for small businesses would be the total number of receivables. Unfortunately, these numbers have gotten much worse over the previous week.
Only 34% of all invoices are still current, down from last weeks number of 43% and 50% from the week before. During normal times the number of receivables that are current would be approximately 66%. The number of receivables that are 1-30 days past due now accounts for 50% of all outstanding receivables, up from 47% last week and 42% the week before. The number of receivables that are 31-60 days late also jumped and is now at 10%, compared to just 6% last week, and are normally 4%. Severely past due invoices have pretty much remained unchanged.
While those percentages may seem like payments are slowing down, and they certainly are, it doesn’t paint the whole picture. It is important to also take into consideration that number of open receivables we have has dropped considerably, by approximately 13% in both of the last two weeks. Most of this decline can be accounted for in current receivables which are 60% lower than what would be considered normal. The number of receivables that are 1-30 days beyond terms actually peeked on April 6th at pretty much double what is considered to be normal, but have gone down by 3% in each of the past two weeks. More problematic is that we saw a large increase in the number of receivables that are 31-60 days beyond terms which are up 37% over last week and are double what would be considered normal.
When you consider these numbers, the vast discrepancy between number of invoices and dollar amounts suggests that the vast majority of our business is coming from major retailers, and that these retailers are not having too much trouble paying their bills. Unfortunately, a large decline in dollars and a sharp increase in number of receivables beyond terms would imply that many small businesses are struggling to stay alive during the COVID-19 pandemic.
The good news however, despite what the data suggests, so far this week it seems like most communications we have received from small businesses are that payments are being sent. While some accounts are still saying that they are unable to pay or are awaiting SBA funding, the number of accounts saying this has gone done significantly. It is possible that some of this may be the result of small businesses who have received funding through the Paycheck Protection Program (PPP). Funding for the program ran out on Thursday, but it looks like congress has a reached an agreement to add more funds to the program. Regardless of what happens in congress, it will be interesting to see how the data looks next week, will the positive trends from this last week continue? Keep checking the DSA blog each week to learn more about the current state of small business in America.
