The Hindu Business Line : Debtor days on the wane

For many software companies, debtor-day figures are down to thelevels seen two years ago. (Debtor days is the ratio between receivables and sales. Greater the collection from clients, lesser the debtor-day value. For, unless sales grow faster than receivables, the debtor-day ratio will not decrease.)

Infosys Technologies, Satyam Computer Services, Mphasis-BFL, HCL Technologies and Cognizant Technology Solutions have all shown a decrease in debtor days between March 2003 and March 2004. The difference, however, is not significant.

Interestingly, though MphasiS, as a whole, has witnessed a slump in debtor days, its software business has seen the figure rise from 70 to 74 in the last year, while its business process outsourcing (BPO) arm has seen a significant slump from 76 to 58 in the same period. Said Mr Ravi Ramu, CFO, MphasiS: "Our collections in the BPO arm have certainly been better than in the software business. But that is because of the nature of the contracts in software."

A spokesperson for HCL Tech attributed the decrease in debtor days to "steps taken to streamline and improve collection processes."

Cognizant, Polaris and iGate have seen an increase in debtor days. Polaris attributed the spurt to a change in the accounting processes of Citibank, a major customer for the company.

Mr Gordon Coburn, CFO, Cognizant, said the increase in debtor days was due to the high percentage of the quarters' billing days that occurred this March.

He added that the need to complete new purchase orders for 2004 pushed invoicing for work done in January and February to the latter part of the quarter.

He does not expect these factors to re-occur in the forthcoming quarter and hence sees debtor days decreasing in the future.

Debtor days relative to sales point to cash-flow trends. Increasing sales and a simultaneous slump in debtor days have a positive impact on cash flow.

Most companies (in the table) have seen this trend. 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.