The Hackett Group released its annual Working Capital Performance of Top US Companies report last week signaling strength in US corporates working capital performance According to analysts last year the largest 1 000 non-financial enterprises in the US showed their strongest performance in working capital management since 2008 However the strategy behind that improvement reveals a darker reality about the state of business in the US According to Hackett the main reason why working capital performance improved among large corporates is because they lengthened their supplier payment terms significantly Researchers warned that inventory management and accounts receivable performance actually both deteriorated in 2017 and lengthening payment terms masked those poor performance markers Corporates in the US took an average of 34 days longer than they did in 2016 to pay their suppliers Days payable outstanding DPO reached an average of 567 days for those 1 000 top corporates Hackett found Meanwhile days sales outstanding DSO increased by 44 percent reaching 395 days while days inventory on hand also increased though only slightly by 06 percent to 51 days on average Hackett analysts found that top performers are widening the gap between typical firms when it comes to cash management Those top performers are now three-times faster than the average corporate at converting working capital into cash Those top performers also collect from customers 27 weeks faster Top performers however are also strengthening their positions by delaying supplier payments This group pays suppliers three weeks slower averaging 669 days the report found This translates into a 11 trillion improvement opportunity for companies that are not top performers an amount equal to nearly 6 percent of the US Gross Domestic Product the report stated adding that the gap between top performers and the average firm is still growing Researchers noted that non-top-performers could improve their cash positions by a collective 358 billion by paying suppliers later The primary strategy many companies are using to improve working capital performance is simply to hold back payments to suppliers in some cases extending payment terms up to 120 days said The Hackett Group Associate Principal Craig Bailey in a statement Payables are often the easiest starting point for working capital improvement as the processes are largely in finances area of control and it has less risk of impacting on customers However Bailey warned the knock-on impacts of delayed supplier payments are stark with delayed invoice payments pushing up DSO for their vendors This year it is driving DSO to a 10-year high he said It can even destabilize a supply base if companies are not careful While corporates have increased their use of supply chain financing Bailey said this strategy still means corporates rely on delaying invoice payments and is not the best way to boost working capital performance Continued delayed payments and lengthening DPO are increasing pressure on smaller companies that are less agile in improving their payables performance he explained According to Shawn Townsend director of Strategy Operations at The Hackett Group there are better strategies than delaying supplier payments to improve working capital performance That includes targeting critical versus non-critical suppliers streamlining their procure-to-pay cycles digitizing their procurement and supplier payment processes with robotic process automation RPA and even exploring blockchain Unfortunately Bailey said it appears corporates are avoiding these strategies which are more difficult to implement than delaying invoice payments The governments continued increase of federal interest rates has driven firms to take a close look at their working capital performance Bailey explained while record levels of M A are also forcing financial executives to improve cash positions So were seeing a significant improvement in working capital performance he stated But debt is also reaching record levels and despite the improvements it appears clear that most companies are still looking for quick fixes and avoiding doing the process improvement and other hard work required to truly improve working capital - You Might Also Like Related Items accounts receivable B2B B2B Payments Corporate Financing inventory management News supplier payments The Hackett Group working capital management