The Hindu Business Line : IT majors report dip in debtor day rates

For many software companies, debtor day figures have slumped in the quarter ended June 2004 compared to the same quarter last year. (Debtor days signify the ratio between receivables and sales.)

Since most companies saw sales rise in the quarter compared to the same quarter a year back, it is evident that the amount owed by clients has not grown as fast.

Among the bigger companies, only Infosys saw a rise in debtor days from 52 to 58. Among the smaller companies, iGATE Global witnessed a rise.

The Mphasis-BFL group, which also saw a slump in debtor days as a whole, saw a greater slump on this count for its BPO operations - from 68 in March 2004 to 50 in June 2004.

Meanwhile, its IT services business saw the number slide from 74 to 68 in the same period.

In May this year, Mr Ravi Ramu, CFO, Mphasis, said: "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."

Polaris Software Labs, which had a spurt in debtor day figures between March 2003 and March 2004, saw the figure slide to 93 from 101 in June 2003.

In May this year, the company attributed the earlier spurt to a change in the accounting processes of Citibank, a major customer of the company.

Cognizant, which too saw a slide, has kept up with its CFO, Mr Gordon Coburn's indication in April this year.

He said that the high count of debtor days in March 2004 was due to the high percentage of the quarter's billing days in the month of March.

"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 also said that these factors would not recur in the June quarter and that debtor days would only decrease.

While the company saw the count decrease between March and June 2004, debtor days for the June 2004 quarter remain higher than in June 2003.

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 observed this trend.

If sales decrease and debtor days also decrease, it means that cash flow management has improved, but there could be an impact due to decreased sales.

When debtor days increase while sales decrease, there will certainly be pressure on cash flow.