Days Beyond Terms (DBT): An Important Business Credit Term
Days Beyond Terms (DBT) is an important business credit term that describes how long it takes a business to pay its bills, past the due date. According to Experian's November 2009 monthly Business Benchmark Report, the national average DBT was 5.16 days. This number has increased by 4 percent, indicating that overall payment behavior is continuing to slow. The health services industry has the best average DBT at 4.02, while (not surprisingly) construction has shown the worst payment performance, coming in at an average of 9.09 DBT.
Experian's report also provides a glimmer of improvement, though. Businesses with 100 to 1,000 employees began showing improvement in overall dollars delinquent, indicating there may be some stability in that important business segment. Businesses with no employees (or nonemployer firms) continue to perform better than most of their counterparts, with the exception of dollars delinquent over 90 days.
Separately, Cortera reported that during 2008, a sample of key members of the U.S. supply chain (manufacturing, retail and wholesale) from their database showed a 39% jump in average Days Beyond Terms (DBT). Again, though, signs of recovery may be starting to appear. According to a December 14, 2009 blog post by Cortera's Alex Cote:
"After witnessing a growing gap between the payment habits of large and small businesses – as recently as a month ago small businesses payments languished at a 38 percent higher days beyond terms (DBT) than big businesses, who had since returned to pre-recession norms – November data show a remarkable improvement for Main Street shops."
For business owners, managing cash flow can be a juggling act. If your goal is to keep your business credit rating strong, it is important to pay your bills as close to the due date as possible. Accounts that are reported to the commercial credit agencies contain a level of detail not found in personal credit reports. (There is no direct equivalent to DBT with personal credit. As long as you are less than 30 days late on an account, it will not likely be reported as late.) When it comes to your business credit rating, your payment history may be compared to other firms in your industry, geographic area, and/or by size of firm. All can affect your credit rating.
Negotiating better terms may be part of your strategy if you cannot pay your bills in full by the due date. Talk to the companies to whom you owe money. Will they allow you to make partial payments? Or extend the due date? Just make sure that if you do reach an agreement that it is more than a verbal one. You want the correct terms accurately reported to the credit reporting agencies so your DBT will also be accurately reported.
Gerri Detweiler’s mission is to provide reliable, unbiased answers to your credit questions. She is the co-author of Business Credit Success: Get on the Financing Fast Track and serves as Personal Finance Advisor for Credit.com.
