The Hindu Business Line : Debtor days: A few cos have a grip

IF new business is hard to come by, one way to sustain yourself is to ensure that existing business pays you enough and quickly. Companies that have turned in impressive growth in the software sector seem to have done just that.

A look at debtor days — the average time your customers take to pay their bills — for companies in the software industry shows a mixed trend. Interestingly, the top few have shown significant decrease in debtor days, reflecting either increased sales or reduced receivables. Infosys, Satyam and Digital GlobalSoft have shown a significant decrease in debtor days between March 2002 and March 2001. Meanwhile, smaller companies have been unable to show as significant a slump in debtor days. Sonata has shown a downward change of 4 days in the same period, while many others have shown an increase in debtor days. Polaris and MphasiS-BFL have shown a significant jump.

A spokesperson for MphasiS-BFL told Business Line, "The change in our debtor days is because our newer contracts, especially in MsourcE, have payment terms for 60 days."

Mr Bhupinder Ahuja, an analyst with Deutsche Securities Asia, "A slowdown in growth has resulted in companies focusing on cost controls and efficiencies. Many large companies, for instance, have been able to manage working capital better and have improved the debtor days over the last 12 months — despite a tough environment."

One of the reasons they have been able to do this, he says, ``Some companies have even linked bonuses of their sales team not just to getting business but to getting payment in time as well.''

Another Mumbai-based analyst says debtor days relative to sales point to cash flow trends. Where sales have increased and debtor days have simultaneously decreased, this will have a positive impact on cash flow. Infosys, Wipro, Satyam and Digital GlobalSoft are in the same boat on this count.

Secondly, if sales have decreased and debtor days have also decreased, cash flow management has improved but there could be impact due to decreased sales. If debtor days have increased at the same time as sales have decreased, there is certainly pressure on cash flow. Pentamedia Graphics is one such company.

Last quarter, Pentamedia, responding to queries on significant jumps in debtor days, told Business Line, ``the slowdown has affected the payment capability of our debtors, sometimes even reducing some of them to file for Bankruptcy or Chapter 11. This is certainly a rude shock to us, and more so, when many of our clients merely `blame it on the economy' slowdown and sport an attitude of apathy.''

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Debtor days: A few cos have a grip