Working Capital Report 2018/19

When it comes to working capital performance, size remains an important factor.

The gap between the largest and smallest companies in our study has widened from a difference in NWCD of 39.6 days in 2013 to 46.8 days in 2017.

The widely-held assumption is that large companies achieve this perfomance by using their spending power and market muscle to squeeze their smaller suppliers. The numbers actually show that small and medium-sized companies have much longer payables cycles than larger companies.

Within any given region around the globe there are wide variations in working capital performance, reflecting differences in market maturity, legislation and cash focus.

Based on the companies included in this year’s study, what is most notable is that Asia is continuing to represent an ever growing slice of the pie, underlining the continuous gravitational pull to the east.

Until about two years ago, the post-crisis recovery story was mixed with strong growth in the E7* and disappointing growth in the G7**.

This, however changed in the middle of 2016, with growth advanced economies—and, in particular in the Eurozone—accelerating. Looking at the specific economies in turn though, paints a more nuanced picture.

The UK economic sentiment remains soft relative to the Eurozone. We expect growth to average about 1.5% per annum, somewhat lower than its estimated trend growth rate of about 2% per annum. This moderate growth outlook assumes that that the Brexit negotiations will proceed reasonably smoothly, and therefore that the UK will avoid an extreme, ‘hard Brexit’.
 

_{^{*E7: Refers to the seven large emerging economies of the world which are: Brazil, Russia, India, China, Turkey, Mexico and Indonesia.}}

_{^{**G7: Refers to a club of advanced economies which are: the US, UK, Canada, Germany, Italy, France and Japan.}}  

The use of vendor financing to shore up suppliers or drive days payables is gathering pace.

Adoption rates have increased significantly since 2014, largely driven by increased uptake from companies below £5bn in annual revenues.

The primary motivation for companies to adopt Supply Chain Finance (SCF) continues to be the optimisation of working capital. This is in line with our finding of a sharp increase in DPO over the last five years. Improving supplier relationships, as well as the overall supply chain stability of the buyer were also key considerations when implementing SCF programmes.