Canadian Treasurer

Oct 13 , 2010

Improving working capital is a widespread concern for finance executives in Europe

London--In a recent survey of over 200 European finance executives by CFO Research Services and The Royal Bank of Scotland, 73% of respondents will seek moderate or substantial improvements in days sales outstanding (DSO) over the next year, while 74% will seek that level of improvement in days payables outstanding (DPO) and 72% in days inventory outstanding (DIO). In particular, the survey cites the need for finance executives to shorten payment cycles and get cash through the door quickly. Over a third of respondents said they need to improve their own working capital processes in order to accomplish this

Respondents place higher importance on improving collections than on improving payables or inventory, with more respondents (20%) indicating that their companies will need to make substantial improvements in days sales outstanding (DSO) than in days payable outstanding (DPO) or days inventory outstanding (DIO)—14% each.

European companies expressed concern over their organisations’ ability to respond quickly and effectively to the challenges of the current landscape. For many respondents, these concerns translated into a heightened focus on cash management and funding operations. In this uncertain environment disciplined cash-management processes were considered vital. Also, the reactions to depressed sales were evident along the supply chain; suppliers are looking to get paid more quickly, while their buyers are trying to extend payment terms as far as possible.

One respondent from the survey stated: “Payments are taking twice the time to be made, which has affected our liquidity”. 35% of respondents overall, and 48% of the largest companies in the survey (with revenues greater than 8 000m EUR), anticipated the need to negotiate better terms with buyers and suppliers over the next year in order to improve working capital.

Survey results also suggest that finance executives in Europe are starting to consider additional automated cash management and trade financing techniques to help their companies improve working capital. Half of the respondents currently employ either e-invoicing/e-billing or automated direct debit. Only 38% or fewer use online invoice viewing and reconciliation, foreign currency netting, intra-day sweeping, notional or zero-balance pooling, automatic investment solutions or direct SWIFT connectivity. For each of these latter techniques, more respondents plan to use or are considering using the technique within the next year, than currently use it. In line with their concerns with getting cash in the door more quickly, respondents also express interest in employing receivables financing or discounting, supply chain financing, and consumer or distributor financing programs more in the year ahead: 47% of respondents indicate they will use or consider using supply chain financing over the next year; 58% receivables financing or discounting; and 55% consumer or distributor financing.



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