Want to get paid faster by clients? Then perhaps you should consider working with businesses in the child day care and medical sectors.
According to a new study by financial information company Sageworks, and written about in CPA Insider, these two industries come out on top when it comes to paying bills quickly.
The report found that on average child day-care providers have a turnaround of 1.39 days when paying suppliers or vendors. The information is based on financial statement analyses of private companies for the 12 months ending on July 31.
Following child day-care providers in their promptness for cutting checks are doctors’ offices and dentists, who on average have accounts payable days of 1.58 and 1.94, respectively.
Rounding out the list of the top 10 industries with the fastest accounts payable times are legal services firms, real estate agents/brokers, car dealers, gas stations, employment service firms, real estate lessors and home health care businesses.
However, just because an industry is quick to pay its suppliers doesn’t mean it’s more creditworthy than others. Sageworks analyst James Noe tells CPA Insider that payment speed is just one component of the cash-conversion cycle.
“AP days is really a double-edged sword,” he says. “If it’s lower, it probably means you’re satisfying the suppliers pretty well. On the other hand, if it’s too low you might be sacrificing your short-term cash and liquidity by paying out too quickly.”
Also, comparing industries can also be problematic.
“You’re looking at companies that sell a specific service, but they don’t necessarily have an inventory or they don’t need to produce the goods that they’re selling via something that they get from suppliers,” Noe continues.
“Many of them don’t rely on external sources, for the most part, to go about conducting their regular operations, and this could play into the industries’ lower AP days metric,” he tells CPA Insider.