Days payable outstanding - and, equally important, a company's DPO relative to the payment performance of its own industry - is a key component of a credit risk benchmark. Intended to help companies spot potential trouble, the benchmark show that approximately one in seven mid-cap companies across nearly three dozen industries poses a potential credit risk to suppliers.
That number varies by industry, with the highest percentages of troubled companies appearing in the pharmaceuticals (46 percent), biotech (35 percent), and media (26 percent) industries.
Pam Krank, president of Credit Department, an accounts-receivable consulting and outsourcing firm, says CFOs are "finally putting credit risk at the top of their lists" for the first time in her 18-plus years in business.
Many companies have devoted substantially more rigor to assessing the financial health of both their suppliers and their customers. Corning, for example, now looks at a host of metrics for its suppliers, ranging from working capital to return on equity. And if it can't find the data it needs publicly, it calls the supplier and asks, then builds short-term projections of the supplier's financial health.
