Companies’ Working Capital Performance Hits Six-Year High

U.S. companies’ working-capital efficiency reached a six-year high in 2018 as finance chiefs increasingly prioritized managing inventories to more quickly convert the capital into cash, a new study found.

The 1,000 largest U.S. public companies collected cash from their customers quicker than they had since 2012, according to a study by Hackett Group Inc., a consulting firm.

The top-performing companies paid suppliers almost three weeks slower in 2018 than typical companies and collected cash from customers almost three weeks quicker—while holding less than half the inventory, data showed. The amount of funds trapped in inventory fell last year for the first time since 2012. Despite the improvements in the receivable and inventory categories, payables performance deteriorated. Companies have begun to scale back on extending payment terms, thus cutting suppliers some slack.

“Inventories are an untapped area of working capital and they’re more difficult to go after than payables,” said Craig Bailey, associate principal at Hackett. “Companies found there’s just not much to be gained going after payment terms.”

A company’s working-capital performance can be tied to the performance of its CFO. Finance chiefs are increasingly standardizing processes to track working-
capital performance across an organization, to make the most of that funding source.

Source: Wall Street Journal