May 13, 2020
Categories:
Small Businesses Continue to Recover from the COVID-19 Pandemic
We announced last week that we were starting to see the beginnings of a recovery for small businesses during the COVID-19 pandemic. In analyzing the data from last week it appears that this trend has continued. For the first time during the COVID-19 pandemic, we have actually seen the data points we are tracking improve for two consecutive weeks. However, we are still far from being back to normal. Lets dive into last week’s data.
Purchase Orders
We reported a huge jump last week in the number of approval requests we received when these requests jumped from an average of 29% up to 45% of normal levels. Last week, the number of approval requests we received was 1% higher, and while that may not be much, it is still a huge improvement over where they had been earlier in the pandemic and the first time we saw a positive change in consecutive weeks. However, while the number of approval requests remained relatively stable at 46% of normal levels, the total dollars of those approval requests dropped significantly over the week before. Two weeks ago we saw the total dollars at 54% of normal levels, but this week they were only at 38% of normal levels. This also marks the first time that the percentage for dollars dropped below the percentage for total number of approval requests during the pandemic. While this might seem concerning, it is actually good news for small businesses. In general small businesses place many small purchase orders, while large corporations would place a single large order. With the number of purchase orders remaining level, but their total dollar amount dropping, it would imply that the vast majority of the purchase orders were coming from small businesses, something that we have not seen since February.
Purchases
While we had good news to report for purchase orders, sadly the same was not true of purchases. Purchases dropped from 63% of normal levels two weeks ago, down to 36% of normal levels last week. This is actually the lowest level that purchases has been at since the start of the pandemic. Of course, it could easily be explained by small purchase orders from small businesses. In general there is very little delay between when a small business places an order and when that order ships. This is more of a sign that the major retailers have stopped placing large orders, perhaps because consumers have stopped hoarding essentials and purchasing habits are returning somewhat to normal.
Payables
Of course it is payables that reflects the true health of a business, are they able to pay for the merchandise they purchased. As has been true every week since outstanding receivables peaked on April 1st, the number of outstanding invoices have dropped once again. The number of outstanding invoices dropped by 9% last week, and total dollars dropped by 3.5%. Once again, this disparity between the number of invoices and their total dollars would imply that it has mainly been small businesses that have been paying their bills last week.
More encouraging is looking at the aging buckets. For the second straight week we saw the percentage of receivables that are current rise ever so slightly. The percentage of receivables that are current rose by 3% to 37%. This is still a far cry from the normal level which would be at 66%, but a drastic improvement of the low we hit 3 weeks ago of 31%. Total dollars that are current also rose by 2% and now account for 63% of total dollars owed, normal levels would be 78%. While this does imply that much of what is current are large orders placed by major retailers, it generally takes about 30 days to see this data change, so the good news that purchase orders provided us about small businesses, probably won’t make an impact on these numbers for a few more weeks.
Past due invoices have also dropped significantly. With the number of past due invoices dropping over 13% and the total dollar of those invoices dropping by 9%. Invoices that are 1 to 30 days beyond terms now account for only 33% of total outstanding invoices, down from 44% last week and a peak of 52%. The dollar amount of those invoices now only accounts for 17.5% of total dollars, which is just a few percentage points away from being considered normal. Most of the invoices in this bucket would have been for orders placed after stay-at-home orders were issued and businesses forced to close, although a handful of them would have been placed just prior to the lockdown.
That leads us to invoices that are now 31 to 60 days beyond terms, all of which would be for orders that were placed before businesses were forced to close, and would have become due either as businesses were told to close or afterwards. The number of invoices in this bucket did increase 6% and total dollars increased by 4%. While these numbers are certainly concerning, they also make up a very small proportion of outstanding invoices, and hopefully they too will be getting paid as more of these businesses are allowed to reopen. Invoices that are older than this have pretty much remained level with several of the oldest getting paid.
State-by-State
Perhaps the most interesting data to see is how businesses are faring in states that are reopening. As we reported last week, the states that had reopened were the states that have been the hardest hit economically by the COVID-19 pandemic. We also reported last week that reopening efforts seemed not to have an impact on the businesses in these states, and if anything, actually made the situation worse. Once again this seems to be true looking at our most recent data.
Last week we reported that the states that have reopened accounted for approximately 8.5% of our total volume as compared to the usual 40% that they account for. This week that number has dropped down even more to 7%. While that may not be a drastic change, it is of course a change in the wrong direction, especially considering that reopening was supposed to improve the economy.
In terms of payables, the numbers are a little harder to read. Last week we figured out that businesses in states that reopened were 3% more likely to be past due than businesses in states that are yet to reopen. This week we found that businesses in states that reopened are 6% less likely to be past due. Past due invoices make up 14% of the total volume for 2020 in states that reopened, while they make up 20% of the total volume in states that are yet to reopen. While this is certainly a positive change, the problem is that current receivables in states that reopened aren’t growing. The result is that the vast majority of receivables in states that reopened are past due, while the vast majority of invoices in states that are yet to reopen are still current.
Unfortunately it seems like being open for business doesn’t equate to improved business, if anything, reopening might actually be hurting retailers. As always, DSA Factors will continue to monitor our data each week and provide updates on the economy and small business in America.
