Yahoo Finance
RapidRatings Executive Chairman James Gellert reveals the silent strain on middle-market companies.
Discover how extended cash conversion cycles, driven by slower payments from larger customers and rising costs, are impacting financial health across supply chains.
Gellert also explains RapidRatings' algorithmic approach to financial analytics for both public and private companies, offering critical insights into default and credit risk.
Middle-market companies with up to $750 million in revenue have seen their cash conversion cycles stretch by roughly 30 days over the past few years, according to James, Executive Chairman of Rapid Ratings, a financial analytics firm that rates public and private companies across 27 industries in roughly 170 countries.
The widening gap reflects a one-sided dynamic: larger buyers are slowing payments to preserve their own cash, while smaller suppliers remain obligated to pay their own vendors on accelerated timelines.
The squeeze matters acutely for carriers, brokers, and shippers because private companies make up approximately 75% of most large companies' supply chains, Rapid Ratings' Executive Chairman said.
As working-capital pressure mounts on those private firms, the resilience of the broader supply chain ecosystem deteriorates with it.
"Those middle market companies have had cash conversion cycles, depending on the industry, gap out over the last few years almost a month," he said, adding that the dynamic reflects larger customers "basically been able to extend payments, generally speaking, because they're stronger." "So many companies have had to be the shock absorbers in the market keeping those or having the erosion in their operating margins." The deterioration has been compounded by a post-2022 macro environment marked by persistent inflation, elevated interest rates, higher labor costs, and tariff volatility.
Most private companies borrow at floating rates rather than issuing long-dated bonds, leaving them directly exposed to rate moves that public peers can partially hedge.
The result has been rising leverage, shrinking interest coverage ratios, and erosion in both operating and net margins across the middle market.
Private equity exit timelines have also lengthened under these pressures.
The Rapid Ratings Executive Chairman said average hold periods, historically around 4.5 years over the past decade, have extended to six or seven years depending on sector, as multiple compression — worsened for SaaS businesses by AI-driven valuation shifts — makes exits less attractive.
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