Highlights from the REL and CFO Working Capital Survey

September 10, 2014


In this year's iteration of the annual study, REL and CFO Magazine analyzed the 2013 financial statements of the 1,000 largest public companies that have U.S.-based headquarters and are not in the financial services sector (the “REL 1000”). They found that for the second year in a row, these companies have more than $1 trillion excess cash tied up in working capital, which accounts for 6 percent of the nations GDP. These companies have a substantial opportunity to increase shareholder value by finding ways to strategically and efficiently optimize their working capital.

REL separated the companies into industry groupings, then organized them into quartiles within each industry. For every company outside the top quartile in one of these metrics, REL and CFO calculated how much additional cash the organization would have available if it improved efficiency enough to bring the associated metric in line with the level achieved by the top quartile of businesses in its industry. The efficiency gains that moved the needle most significantly were extending payment terms, dynamic discounting and e-invoicing.

Extending Payment Terms

When companies extend their payment terms on the A/P side, the receivables of their suppliers takes a hit, making it more difficult to serve you, the buyer. “Companies that are being impacted with their own DSO are looking at how they can mitigate that through their own payables,” REL’s DeHaro says. “And similarly, if they’re looking at expanding inventory, they're figuring out how to make tradeoffs with payables that can mitigate the costs.”

Dynamic Discounting

Top performing companies are evaluating which payment terms are standard in their industry then turning to approaches like dynamic discounting and supply chain finance to increase returns on their working capital. “In general, best practices are balancing all these options,” DeHaro says. “They won’t necessarily work for all your supplier base, but they’ll work for a portion of your supplier base, and you need to determine how they can positively impact your DPO standing.”


The other thing top performers are doing to improve payables performance is leveraging technology to automate processes. “They’re looking at electronic funds transfer, electronic bill presentment, scanning, those types of technologies, and determining how they can impact their overall payables process, their supplier relationships, and their cash flow,” DeHaro says. “Some are also considering p-cards. All of these things wrap into one another, with tradeoffs between cost and cash flow.”


According to the REL/CFO study, across all organizations, DSO fell slightly from 36.4 days in 2012 to 36.3 days in 2013; DIO remained steady at 29.6 days; and DPO increased slightly from 31.8 days in 2012 to 32.0 days in 2013. DeHaro attributes the stability of these metrics to the current interest rate environment. She expects that as interest rates rise and cash becomes harder to come by, pressure will mount for companies to move working capital management up the priority list.

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