The virtues of paying your debts

October 8, 2013
By: Tim Heston

Whenever I think of the debt ceiling, I think of Vivek Gupta, managing director of Texas ProFab in Carrollton, Texas.

In 2008—back when we were all debating whether we were really heading into a full blown recession (how quaint)—he told me that he not only pays the fabricator’s bills on time, he pays them early. This promotes the company’s reputation as a reliable partner and, not least, gives the company a leg up when negotiating the delivery of certain materials and supplies. As a small business, Texas Profab may not buy huge quantities of material, but it pays early.

Gupta certainly isn’t alone among fabricators. According to the 2013 Financial Ratios & Operational Benchmarking Survey, published by the Fabricators & Manufacturers Association International, almost 40 percent of respondents said that on average they paid their bills in fewer than 18 days (days in accounts payable, or DAR). A full 16 percent said their DAR was fewer than 12, and a few reported DARs as low as 3.

Fabricators have liquidity to pay, too. About 16 percent said their quick ratio (total assets minus inventory, divided by total current liabilities) was less than 0.82. When it comes to total liabilities, this business doesn’t have a lot of them.

Congress should pay attention to fabricators and, for that matter, the thousands of small business owners that, as politicians themselves claim, drive economic growth in this country. Even the Chamber of Commerce is up in arms about the current chaos.

Starting on Oct. 1 The FABRICATOR magazine held its annual Technology Summit in Atlanta. It was the first day of the government shutdown—something we did not plan for, I assure you. I recall talking with one heavy-plate and vessel fabricator at the event. He told me his company may well have dodged a bullet. Up until last year nearly 80 percent of its work came from projects managed by the Department of Energy. Now most of those projects are over, and the customer paid its bills (thank goodness). Going forward, he told me more business was coming from other sectors, like rail and other transportation equipment.

Of course, if this shutdown leads to a government default, it’s likely that no sector will be safe. My hope is that our politicians will start to appreciate what puts food on the table for most of its voters: the small business. They should start to act like one, and pay its bills.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314