Once you’ve looked at the DBT score for your customers, you should then look at the DBT Peer Analysis in their business credit report to see how they pay their invoices compared to others in the industry. If you’re in talks with a potential customer and their business credit report shows that they have a DBT of 25 days, while the industry average is much lower at 3, that should be a clear sign of a few things. Not only is the potential customer a high risk and could end up depleting your cash flow, but there are likely other similar companies you could pursue for a deal who won’t put your business into financial trouble. That’s the kind of insight you should be using to make business decisions. It’s far more reliable than gut instincts or hope.
So, if you’re a food manufacturer and want to sell your products to a large grocery chain like Whole Foods, you’ll want to do your due diligence first and see how strong (or weak) their finances are. Because if you sell to them and they have all sorts of financial and legal issues, that could affect how quickly you get paid. And you count on that money to pay for your ongoing expenses. So, you want to protect your cash flow whenever possible, right?
What’s interesting about Whole Foods is that they have an exemplary low DBT of 3 – meaning they tend to pay most of their invoices on time (with the occasionally few days of lag). This contrasts with the industry average DBT of 7 days.
This makes the supermarket giant an outlier because it’s a large company that pays suppliers on time. But interestingly, it recently asked suppliers to reduce their prices – causing some to wonder if the popular grocery chain could be in financial trouble. But when you consider how low its DBT score is compared to other grocery chains, that’s not likely to be the reason.