Reduced supply chain pressure
Reduced supply chain pressure
The gradual easing in supply chain disruption has allowed companies to manage inventories more efficiently, rather than falling back on a ‘just-in-case’ stocking approach, which eases uncertainty over supplies, but uses up excessive amounts of working capital. The change of tack in inventory management is especially evident in the EU and Asia.
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Fall in cash tied up in working capital
Fall in cash tied up in working capital
Overall working capital days, the level of net operating working capital held by businesses relative to their sales, has improved across most major economies in our study. Both DSO and DPO have fallen, with DSO dropping by 5.9%, down 3.1 days, and DPO decreasing by 6.2%, down 4.5 days. Payment terms regulation is a key driver, especially within the EU, which is limiting the ability of large buyers and sellers to dictate favourable terms with their suppliers and customers.
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Asset side drives bulk of improvements
Asset side drives bulk of improvements
In previous years, companies tended to manage working capital by stretching supplier terms. But the latest improvements mainly stem from the asset side of working capital through better management of customer collections and closer control of inventories. Between receivables and inventories, we’ve seen an estimated €600bn reduction in nominal working capital requirements on the asset side, relative to what we would have seen on prior year trends. More than €250bn of this has come from the EU alone.
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Big gulf in large & smaller company performance
Big gulf in large and smaller company performance
The improvements in NWC have been primarily driven by large companies. Both medium- and small-sized companies actually saw a deterioration in NWC days, 3.6 and 3.2 days respectively. This suggests that large companies are the primary beneficiaries of technological advances, which support a reduction in working capital. As boutique and midmarket technology players continue to gain a foothold, we expect many small and mid-sized companies to acquire the technology they need.
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Technology helps plug staff shortages
Technology helps plug staff shortages
Although the improved efficiency of Working Capital Management (WCM) is encouraging, the challenge of attracting and retaining enough staff to run key working capital processes continues. Automation and digitisation can cover a lot of the work and free up precious time. But technology isn’t a silver bullet. With so much choice, selecting the right tools and defining a solid business case can be challenging. In turn, implementation impacts on a wide range of stakeholders, underlining the importance of organisation-wide understanding, buy-in and change management.
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