The Hindu Business Line : Software majors see fewer debtor days in June quarter

SOME of the top Indian software companies have reverted to showing discipline in their receivables. Debtor day figures, which rose significantly for the March quarter, compared to the June 2004 quarter, are back to milder levels. (Debtor days is a ratio between receivables and sales. Greater the collection from clients, lesser the debtor days' value.)

Infosys Technologies, Wipro Technologies, the global IT arm of Wipro Ltd and HCL Technologies have all seen a slump in debtor days. For the March 2005 quarter, explaining a spike in debtor day figures in its analyst call, Infosys had said that a client had delayed a payment due to an internal reorganisation and that it had received a large cheque, equivalent to 12 days, that it received in the first week of April

Cognizant Technology Solutions has shown an increase between the June quarters. In the analyst call, the company's Chief Financial Officer, Mr Gordon Coburn, said, "Our collection of trade receivables during the quarter was below our expectations." It completed the June quarter with debtor days, "including unbilled receivables, of 71 days compared to 65 days at the end of March."

He added that the unexpected increase in debtor days had resulted from a delay in issuing April and May invoices to several clients while Cognizant "completed contractual renewals." At the time, he had said, "The increase in unbilled receivables resulted primarily from the timing of several billing milestones and the volume associated with our continued revenue growth. We expect approximately 60 per cent of the June 30th unbilled balance will bill in July."

Debtor days relative to sales point to cash flow trends. Increasing sales and a simultaneous slump in debtor days has a positive impact on cash flow. If sales decrease and debtor days also decrease, cash flow management has improved but there could be impact due to decreased sales. When debtor days increase while sales decrease, there will certainly be pressure on cash flow.

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