The 1000 largest non-financial companies in the U.S. slowed payments to suppliers slightly in 2019 as they collected cash from customers more slowly and held slightly more inventory, causing overall working capital performance to decline after several years of improvement, according to the annual survey of The Hackett Group. At the same time, cash on hand and debt grew dramatically, reaching record levels.
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But according to The Hackett Group’s research team, the global pandemic has sparked a dramatic increase in focus on working capital and overall liquidity in 2020, driving many companies to launch comprehensive transformation efforts for the first time as they try to determine what their business will look like as the world economy emerges from the crisis.
The Hackett Group’s annual working capital survey is featured in June/July issue of CFO Magazine. A complimentary analysis of this year’s working capital survey results will be available in early July. Pre-register here to receive a copy: http://go.poweredbyhackett.com/20wcuspre2006sm
Overall, the survey found the potential for nearly $1.3 trillion of working capital improvement opportunities among the companies surveyed. Upper quartile companies converted cash 3x faster than median performers. They collected from customers 19 days faster, paid suppliers 20 days slower, and held less than half the inventory.
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Both debt and cash on hand increased by 12% in 2019, with cash on hand reaching the highest point in the last 10 years. Companies continued to take advantage of low interest rates, borrowing to improve their cash position.
“As has been the case for more than a decade, companies relied largely on quick fixes in 2019 rather than do the more challenging work of process optimization and organizational design. The improvement in payables performance resulted from typical companies improving their performance, closing the gap to top performers. But it was driven largely by increased use of external financing solutions, such as supply chain financing rather than structural and organizational changes. And on the cash side, companies simply turned to banks, increasing their debt substantially,” said Craig Bailey, Associate Principal, Strategy & Business Transformation, The Hackett Group.
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