Customers Are Struggling to Pay, July CMI Shows

NACM’s Credit Managers’ Index fell 2.6 points in July to 52.4, nearly erasing the jump seen in June. The decline can be linked to major drops in three factors—sales, dollar collections and dollar amount beyond terms, said NACM Economist Amy Crews Cutts , Ph.D., CBE. “The weakening in these three factors paint a somewhat bleak picture of companies trying to manage cash flow and protect margins,” Cutts said. “Volatility generally is bad for the economy, and credit managers are seeing that in how their customers are trying to manage their invoices, asking for extended terms or going beyond terms until they get collection notices before paying up. Other economic indicators are quite strong, but the CMI indicates that businesses are still under significant stress.”

Despite the volatility, however, Cutts said the economy remains in an overall strong position to avoid a full-blown recession. “The Credit Managers’ Index year has been see-sawing between ‘recession is about to start’ and ‘business is good’ levels since the start of this year,” she explained. “Sales are slowing, but remain healthy. But the share of respondents seeing falling sales has moved from 22.4% in March 2021 to 44.4% in July. New credit applications are slowing, so new and existing businesses are not seeking to grow as quickly as they had been but the applications that are received are being approved at roughly the same rate as before the banking crisis.”

The?combined index of favorable factors?fell 4.1 points to 56.4, led by a 6.3-point drop in sales to 55.6. Dollar collections fell 5.4 points to 56.2. Amount of credit extended lost 3.4 points to 56.8, a 10.3-point drop year-over-year.

Combined unfavorable factors?lost 1.5 points to 49.8, led by a 5.7-point drop in dollar amount beyond terms, which is now deep in contraction territory at 46.1. This is the lowest value for this factor since August 2022. Accounts placed for collection remained in contraction territory at 48.2.

For the last 13 months, the index for accounts placed for collections has been in the contraction range below 50 points, “meaning credit managers are referring more accounts to collections each month,” Cutts said. “Now we are seeing the number of accounts going beyond terms finally matching this trend, with a large increase in delinquent accounts in July. From February through June, the factor index indicated that fewer accounts were going beyond terms.”

*The CMI is centered on a value of 50, with values greater indicating expansion and values lower indicating economic contraction.

What CMI respondents are saying:

• “April through June has been topsy turvy.?We had a slight rebound in May but a drastic drop in sales for June. Customers continue to struggle with cash flow due to liquidity issues, higher interest rates and slower paying clients.”
• “We are still working through backorders from supply chain shortages.”
• “More private sector companies had payment issues over the last few months.”
• “State of California and Utah Medicaid reimbursement delays materially impacted delinquency.”
• “We are coming off two back-to-back record months.”
• “The reason why our sales numbers are down is due to supply chain issues that continue to backlog the order board. Once we ramp up production, we will have some record sales months.”
• “Our biggest issue is still in hiring and retaining new employees.”

Participate the CMI every month for the next 12 months and automatically be entered to win ONE of FOUR $250 gift cards in 2024.?Sign up?to receive monthly CMI survey participation alerts. For a complete breakdown of manufacturing and service sector data and graphics, view the?July 2023 report. CMI archives also may be viewed on?NACM’s website.