FedEx vs. UPS vs. DHL: Who Delivers Better on AR Metrics?

FedEx goes head-to-head with rivals UPS and DHL in a nail-biting race of accounts receivable (AR) metrics. And the verdict is in!

When you hear 'FedEx,' you likely think of speed and efficiency, with images of parcels crisscrossing the globe in a matter of hours. But did you ever wonder how that translates to their financial prowess?

In this article, I've blended the adrenaline of high-speed deliveries with the thrill of financial analysis, comparing the financial metrics of DHL, FedEx, and UPS.

We're diving deep into the YOY stats, shaking out the details on days payable outstanding, and dissecting the cash cycle.

Let’s take a deep dive.

FedEx vs UPS vs DHL and Days Sales Outstanding

You’d expect FedEx and other parcel shipping companies to have a low DSO (the average number of days it takes to collect payment for a sale) since they deliver their service within a short time (2-7 days).

But most of them cater to a large B2B customer base that demands liberal credit terms to do business. This drives up their collections time.

• FedEx’s average DSO for the last five financial years (2019-2023) was 47 days. FedEx improved its DSO from 51 days in 2020 to 44 days in 2023. AR reforms, especially on the automation front, likely helped FedEx improve the speed of collections and lower its DSO.
• UPS and DHL had an average DSO of 45 days and 43 days, respectively, in the last five financial years.*

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All three parcel shipping giants have a DSO that is comparable with the average DSO for the transportation industry, which is about 45 days.

Who has the highest Receivables Turnover Ratio?

Accounts Receivable Turnover (ART) ratio is an indicator of how many times you collect receivables in a year.

Receivable turnover ratio = Net credit sales/Average accounts receivable

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• FedEx’s receivables turnover ratio averaged 7.7, indicating that it collected its outstanding receivables about seven times in a year.
• UPS and DHL had average ARTs of 7.5 and 6.5, respectively. 

FedEx has a higher ART compared to UPS and DHL despite its DSO being the longest. This is because its credit sales percentage is higher than that of peers.

FedEx has improved its receivables turnover ratio by ~23% in the last five years. This is a reflection of its AR modernization efforts.

FedEx reduced its cash conversion cycle by 6 days

Since parcel delivery providers like FedEx hold inventory for very short periods, their CCC (the time it takes for a company to convert cash spent on inventory back into cash) is mainly influenced by the time they take to make supplier payments and collect customer payments.

• FedEx’s CCC in 2023 was 28 days. FedEx takes almost a month to convert its inventory into cash. 
• Compared to this, UPS’ cash conversion cycle was 15 days.
• DHL, on the other hand, reported a negative cash conversion cycle in the last five years. 

The industry average is approximately 25 days.

While FedEx has been able to shorten its cash cycle by 6 days from what it was in 2020, its CCC still remains much longer than that of its peers.

Why is FedEx’s CCC higher than its peers despite comparable DSO?

Here we look at why FedEx has a longer cash cycle compared to its peers.

Lower Days Payable Outstanding (DPO)

FedEx paid its suppliers in almost half the time compared to UPS and DHL. FedEx had an average DPO of 22 days in the last five years, compared to DHL’s 45 days and UPS’ 34 days. This doesn’t allow FedEx to keep cash in hand for longer compared to peers, thus increasing its cash cycle.

Here’re some likely reasons for the differences in DPO between the parcel giants.

• Express deliveries vs regional deliveries: FedEx specializes in time-sensitive deliveries that are often done for overseas customers. UPS, on the other hand, focuses on regular local and regional deliveries. This likely allows UPS the advantage of paying their suppliers later due to their regular, long-term tie-ups. FedEx on the other hand pays suppliers sooner since their USP is express deliveries.
• Supply chain finance program: UPS is a part of JP Morgan’s Supply Chain Finance program. Their suppliers can sell their invoices to the financial institution and collect the payment sooner. UPS pays the financial institution later. This allows UPS to keep cash in hand for longer. 

Higher Days Inventory Outstanding (DIO)

FedEx holds inventory for a slightly lower period compared to peers. Over the last five years, FedEx had an average DIO of 3.6 days, while DHL and UPS reported DIOs of 4.6 days and 4.3 days, respectively. This is also reflected in their respective cash conversion cycle timelines.

FedEx’s lower DIO is likely because of its faster delivery services, which reduces its inventory carrying time.

Credit loss trends for the courier giants

Credit loss allowance is an indicator of the probable bad debt that a company is expecting. 

Among the three parcel delivery giants, FedEx had the highest credit loss allowance to sales ratio (0.52%), followed by DHL (0.35%) and UPS (0.15%).

While UPS has maintained almost the same level of credit loss allowance to sales ratio in the last five years, FedEx’s ratio has more than doubled.

In the last five years, FedEx has also seen its bad debt to sales ratio double, from 0.38% in 2018 to 0.77% in 2023. Its credit losses jumped ~95% between 2019-2021 as a result of the economic headwinds caused by COVID-19, trade disputes in Europe, delays in invoicing, and offering credit to customers without collateral. 

FedEx, in its annual reports, stated higher bad debt as one of the reasons for its increase in operating expenses (39% between 2018 – 2023).

Looking ahead: FedEx is focused on digital transformation and lowering costs

The financial metrics of all delivery carriers are expected to be under pressure in 2023-24 as overcapacity and muted demand drag down revenues due to discounted pricing.

FedEx’s focus on reducing operating costs can help it weather some of these external challenges. FedEx has combined its overnight delivery business with its outsourced package delivery business unit to cut $4 billion in costs by 2025.

While we conclude that FedEx is not the fastest among its peers in collecting accounts receivable, it is investing in the latest digital tools to boost collections.

FedEx’s focus on digital transformation along with streamlining its operations can help it beat the market blues and remain a leader in the parcel shipping industry.

*Note: The financial year end for Fedex is May 31. The financial year end for UPS and DHL is December 31. The last five financial years’ data for the respective companies have been used for the analysis.