[surveys that pay cash instantly 2020]Hackett Survey: Pandemic Drives Significant Changes in Working Capital Performance in 2020
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  By Patrick Burnson, Executive Editor ·

  June 29, 2021

  The pandemic drove significant changes in working capital performance among the 1000 largest non-financial U.S. companies in 2020, according to new research from The Hackett Group, Inc.

  Drops in revenue and cost of goods sold were seen in many industries, and this was a major factor affecting overall working capital performance, the survey found. But companies also dramatically slowed payments to suppliers, and disrupted demand and unsold products drove inventory to higher levels. In addition, companies increased their cash on hand by 40% to protect themselves from the impact of the pandemic, and continued to accrue debt at record levels, with debt rising by 10% year-over-year. Capital expenditures also fell to record low levels, as companies cut spending and conserved cash in anticipation of further market uncertainty.

  Days Payable Outstanding (DPO) was the main working capital shift evident in 2020, rising by 7.6%, with typical companies now taking more than 62 days to pay suppliers, an all-time high. Days Sales Outstanding (DSO) and Days Inventory Outstanding (DIO) also rose to all-time highs. DSO increasing by 3.8% to 41.5 days, and DIO rose by 7.1% to 54.4 days.

  The Hackett Group’s research identified a working capital improvement opportunity of more than $1.2 trillion among the companies surveyed. Upper quartile companies now convert cash more than 3x faster than typical companies (15.7 days versus 46.4 days). Top performers collect from customers 41% faster (29.0 days versus 48.8 days), hold less than half the inventory, (29.4 days versus 62.5 days) and pay suppliers 56% slower (76.7 days versus 49.3 days). The largest year-over-year shift was in payables, where the performance gap between top quartile and median companies increased by 10 percentage points in 2020.

  Overall, the Cash Conversion Cycle (CCC), a standard measure of working capital performance, deteriorated by 2% in 2020, driven by increases in inventories and receivables. But excluding the oil and gas industry, which faced special challenges because of the fall in oil and gas prices, CCC actually improved by 4%. Performance also varied widely in other industries. Commercial closures, lockdowns, and stay at home orders impacted many industries, driving deterioration in working capital in many industries, including airlines (903% year-over-year CCC deterioration), hotels and recreation (47% deterioration), and railroads and trucking (25% deterioration). But pandemic-related shifts in demand allowed companies in some industries to see improvements in working capital performance. These included household and personal care (113% year-over-year CCC improvement), Media (106% improvement) and Internet and catalog retail (65% improvement).

  The survey also found that cash on hand increased by 40% year-over-year, the first significant increase in a decade, as companies sought to safeguard against continued uncertainty, and in some cases prepare for potential opportunities. Debt continued its long-term upward climb, driven by low interest rates and available credit, increasing 10% year-over-year. Debt has risen by 67% since 2015. The pandemid also drove companies in many industries to cut capital expenditures, with Capex declining by 10%.

  The Hackett Group’s annual working capital survey is featured in June/July issue of CFO Magazine. A summary of The Hackett Group’s 2021 Working Capital Survey findings is available on a complimentary basis, with registration, at this link: http://go.poweredbyhackett.com/uswcspg2106sm

  “Liquidity was of crucial importance as companies responded to the pandemic, driving companies to conserve cash and increasing debt, to put themselves in a better position to extend terms to customers, support suppliers, and weather unforeseen changes in market conditions,” said Craig Bailey, Associate Principal, Strategy & Business Transformation, The Hackett Group. “On payables, we saw many companies simply forced their suppliers to take 30-day term extensions. But some were able to support weaker suppliers to protect their supply chain. On the inventory side, companies in many industries saw dramatic revenue drops, and responded by consolidating their offerings or otherwise simplifying their mix of products.”

  “The pandemic has also driven a significant changes in consumer buying habits,” said Bailey. “Customers have leaned heavily on e-commerce this past year, and looking forward, it’s hard to predict if or when traditional demand patterns and buying habits will come back. Companies need to foster greater agility, so they can dial production up or down to match demand, and also shift sales channels as necessary, moving more business to e-commerce if customer demand warrants it.

  “Inventory management will also be key. There’s a lot of uncertainty going forward, and companies that have greater ability to manage inventory levels will be in a better position to respond quickly to market shifts. But inventory has historically been a difficult area for companies to optimize, as different parts of a company, like sales or manufacturing, often have competing priorities and goals in terms of inventory.”

  Bailey told SCMR in an interview that last year liquidity was of crucial importance to most companies.

  “Companies that were cash rich were in a better position to support their suppliers. But across the board, particularly in industries that faced more pandemic-related challenges, many companies simply pushed 30 day term extensions onto their suppliers,” he added.

  The Hackett Group Working Capital Survey and Scorecard calculates working capital performance based on the latest publicly available annual financial statements of the 1,000 largest non-financial companies with headquarters in United States, sourced from FactSet/FactSet Fundamentals.

  The survey takes an industry-based approach to ranking companies according to the four key working capital metrics Days Sales Outstanding (DSO), Days Inventory Outstanding (DIO), Days Payables Outstanding (DPO) and Cash Conversion Cycle (CCC). For each industry the companies are ranked according to overall CCC days. Companies are classified according to the FactSet industry classification system, using data sourced from FactSet. For purposes of the survey and presenting the results we have grouped certain industries together. Historical comparisons within the survey are made on a like for like basis.

  

  June 29, 2021

  

  Patrick Burnson, Executive Editor

  Mr. Burnson is a widely-published writer and editor specializing in international trade, global logistics, and supply chain management. He is based in San Francisco, where he provides a Pacific Rim perspective on industry trends and forecasts. He may be reached at his downtown office: [email?protected]

  

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