Credit2B Payment Quality Index (PQI): Record Setting Trade Credit Environment

Overall business credit payments continue to show the strongest trend since the recession as the Payment Quality Index (PQI) crosses a record setting 83 out of 100, indicating an extremely high confidence index on businesses extending credit and being paid within terms.

Credit2B is the leading web-based community of trade credit grantors that share a common platform to access better credit information about their trading partners. The firm’s Payment Quality Index (or PQI), indicates how well trade suppliers are getting paid by their business customers. PQI is the probability that a trade creditor will collect its money within its terms of sale on a scale of 0-100 (100 being perfect) based on tens of millions of trade receivables experiences from Credit2B’s contributing and diversified trade suppliers.

Earlier this year, Credit2B’s US Trade Supplier PQI went down to 81.4 in January 2014 and 81.2 February 2014 from a prior high of from 82.7 in October 2013, clearly indicating a weakness in credit payment terms, driven heavily by the disruptive winter weather pattern in the US over that period. March, however, saw a significant rebound in the Supplier PQI, rising to 82.5 and continued to hover in a tight range of 82.5-82.7 from April through August 2014. September however witnessed the index touching a record setting 83.0 – a number not witnessed since well before the recession.

“We’ve seen a quantum improvement in credit payments since March and April of this year” said Bob Carbonell, Chief Credit Officer of Credit2B. “We also see continued stability in willingness to take risk. On average, our client base’s credit utilization levels (ratio of average total balance to average high credit over a 12 month cycle) remained consistently above 80%. Also noteworthy is that average balance outstanding jumped 10% in the last quarter which means people are extending significantly more business credit while also getting paid better.” Carbonell is an industry veteran who spent a significant part of his career as a leading analyst at D&B, prior to his career at Credit2B.

Bottom Line for Credit Managers:
• Strong upward trend in the PQI since 2007 continues as the index achieves a record level of 83.0
• Trade creditors are extending larger amounts of credit as payment terms get better which indicates a very robust business confidence environment in the US
• At such optimized levels of payment, the key question is where do we go from here? To learn more and track our index follow us on LinkedIn and sign up for regular updates.