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Mary Ellen Biery
Which clients pay the fastest?

An analysis of accounts payable data shows that some industries will cut you a check quicker than others.

September 8, 2014
by Mary Ellen Biery, Sageworks

All business people love clients or customers who pay their bills quickly. The faster the money comes in, the faster you can use it to pay yourself, your employees, and your own vendors.

Which industries pay the fastest? It turns out that child day care services, several medical fields, and legal services top the list of industries with the fastest turnaround in accounts payable, according to new industry data from Sageworks, a financial information company.

It took day care providers an average of 1.39 days to pay suppliers or vendors, based on a financial statement analysis for the 12 months ended July 31. Physician offices and dentists followed with the next lowest average accounts payable, or AP, days, at 1.58 and 1.94, respectively.

Legal services firms and real estate agents and brokers had average accounts payable days of about three. Automobile dealers, gasoline stations, employment services firms, real estate lessors, and home health care services also made the list of the 10 industries with the fastest accounts payable times.

Sageworks compiled the list from data it collects from financial statements for private companies from accounting firms, banks, and credit unions.

A smaller accounts payable days average can mean the industry pays its suppliers faster, but it doesn’t imply companies within that industry have better creditworthiness, according to Sageworks analyst James Noe. Accounts payable days is just one component of the cash-conversion cycle, which also includes accounts receivable days and inventory days.

“AP days is really a double-edged sword,” Noe said. “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.”

Comparing industries against each other can be tricky, Noe said. And for many industries, the lower average accounts payable days figure is simply a function of the types of services or goods sold.

“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 said. “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.”

On the other hand, industries more likely to have suppliers (such as wineries) or subcontractors (such as construction companies) are often billed for these goods and services and therefore generate payables.

One way accountants can use industry data on payables to win additional engagements is to identify an industry they’re interested in serving and to conduct a trend analysis within that industry. “You can get a better idea of what’s going on in that industry, and by comparing a specific client’s AP days to the trends for the industry, you can begin to assess whether that client needs help adjusting policies for payables,” Noe said.

Cut me a check
Here’s a look at the industries with the lowest average accounts payable days (last 12 months).


Industry

Average accounts payable days

Child day care services

1.39

Physician offices

1.58

Dentist offices

1.94

Legal services

2.65

Real estate agents/brokers

3.02

Automobile dealers

4.07

Gasoline stations

5.31

Employment services

5.43

Lessors of real estate

5.64

Home health care services

6.23

Source: Sageworks

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Mary Ellen Biery is a research specialist at Sageworks Inc.