Canadian Treasurer

November 22, 2010

Working capital a priority, survey finds

SCOTLAND--With short-term credit expensive and difficult to come by, managing cash and improving working capital has assumed top priority for European finance executives, says a report from CFO Research Services and the Royal Bank of Scotland. The report entitled Working Capital Management in a Post-Recession Environment: The View from Europe, is based on the response of 207 senior finance executives to an online survey.

“In a post-recession environment, cash is on everybody's mind and there is a heightened urgency to manage it,” David Owens, Associate Director of Research at CFO Research Services, tells Canadian Treasurer.

“Before the recession, finance executives relied on weekly or even quarterly cash reports and forecasts to manage their cash,” says Owens. “Now cash forecasts are much less reliable and executives are having to check their cash position much more frequently, on a weekly or even a daily basis. And they are having to rely on managing working capital in order to reduce their financing costs.”

Consequently, in order to improve working capital, there is a need to negotiate better terms with buyers and suppliers over the next year. This need was identified by 35 percent of all respondents, and by 48 percent of the largest companies participating in the survey with revenues greater than €8 billion (C$11.09 billion).

With suppliers looking to get paid more quickly and buyers trying to extend payment terms as far as possible, company liquidity is being squeezed and disciplined cash-management processes were vital, survey respondents said.

The survey found that respondents are concerned about their organisations’ ability to respond quickly and effectively to the challenges of the current landscape and that they are starting to consider additional automated cash management and trade financing techniques to help their companies improve working capital.

Currently, only half of the respondents said that they employ either e-invoicing/e-billing or automated direct debit and only 38 percent or fewer said that they use online invoice viewing and reconciliation, foreign currency netting, intra-day sweeping, notional or zero-balance pooling, automatic investment solutions or direct SWIFT connectivity.

Respondents said they were interested in increasing their use of receivables financing or discounting, supply chain financing, and consumer or distributor financing programs. Over the next year, 47 percent of respondents said they would use or consider using supply chain financing, 58 percent said they would use receivables financing or discounting; and 55 percent said they would use consumer or distributor financing.



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