In a recent Huffington Post article, Visa’s Head of Global Financial Education Nathaniel Sillin wrote, “Understanding how much it costs to manage a home and the importance of paying your bills on time can help you avoid costly mistakes.” While many readers would likely nod in agreement, Sillin’s sage advice is not as universal as you might think. At least not in the business world.
Bloomberg has cited a report by Quandl’s partner Dun & Bradstreet (essentially the Experian and Equifax of the business world), claiming that “For big businesses, . . . things are different. For one thing, they generally don’t pay their bills on time. Only 10.8 percent of publicly traded corporations in the US pay suppliers on time or early”.
This might seem counterintuitive. Why would a big business, which has the resources to pay its bills on time, choose not to do so? The short answer: Because it can.
What D&B has found is that consistent late payments can actually be evidence of a company’s strength. After all, companies have an incentive to pay invoices late because the resulting cash is free financing for them. Big companies are not beholden to any one supplier. The ability to pay suppliers late without losing them is indicative of the buyer’s dominance over its suppliers.
This power gives them control over their quarterly cash flows and leverage to negotiate with suppliers on price. This means tighter credit spreads and equity outperformance. Consequently, according to D&B’s report, “firms that pay their suppliers consistently late are rewarded with higher stock returns while firms that pay their suppliers inconsistently early are punished with lower stock returns.” It seems as though the early bird doesn’t always get the worm, especially when it’s a big bird.
Quandl offers D&B’s company financial stress data, which includes information on companies that are late paying their invoices. If you’d like to request a sample of this data, please contact us through the below link: