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2020 Working Capital Survey – Key Findings

August 31, 2021

Season 2, Episode 8

Host István Bodó talks with Craig Bailey, who leads the working capital team within The Hackett Group’s finance transformation practice, about key findings from The Hackett Group’s 2020 Working Capital survey. The survey, which analyzes performance in payables, receivables and inventory for the 1000 largest public non-financial companies in the U.S., showed the transformational impact of the pandemic on working capital performance. Overall, most companies dramatically slowed payments to suppliers in 2020 to improve their own bottom line, while disrupted demand caused inventory to reach record levels. Driven by market uncertainty, cash-on-hand and debt both also rose to record levels. The two also discussed how companies are now moving forward, focusing on working capital to be able to more effectively respond to the various unknowns related to the economic recovery.

Show Notes

Today’s episode of the Business Excelleration Podcast is hosted by István Bodó, Director at the Hackett Group. István welcomes Craig Bailey, Leader of the Working Capital team within the Finance Transformation Practice at the Hackett Group. The conversation is centered around the key findings of the 2020 US Working Capital Study, the effects of the pandemic and the transformation within the working capital as a result.

For over 15 years, the Hackett Group has published an annual working capital study, analyzing the cost and cash performance based on publicly available financial statements of the 1,000 largest non-financial companies with headquarters in the U.S. Companies are ranked according to selling, general and administrative expense. For each industry, companies are ranked according to overall cash conversion cycle. From a working capital management perspective, 2020 was a year unlike any other. Looking at the study results, it is evident the pandemic had a wide-reaching impact across all industries.

When looking at working capital performance in 2020 across these 1,000 companies, there was a slight deterioration in their overall cash conversion cycle. After factoring in fluctuating oil prices, Craig explains there was actually a slight improvement in the cash conversion cycle, though receivables still deteriorated significantly. The real improvements observed were on payables, driven mainly by the fact that companies were delaying payments to their suppliers.

Many industries such as service and hospitality were heavily impacted by lockdown measures with reduced revenues and inventories. At the same time, industries such as delivery and e-commerce benefited substantially by the same measures. In their case, the DSO remained flat as their clientele grew. Focus was directed towards maintaining supply rather than pushing out supplier payment extensions. Additionally, cash on hand was a real shift in the study this year, increasing by 60%. Debt continued to increase, cap spending was cut and dividends were reduced. CFOs began focusing on remaining liquidity and hoarding cash amidst the uncertainty.

Then, Craig shares his predictions about where working capital is headed. More than ever, it will likely continue to be top of mind while CFOs keep a very close eye on liquidity. Many customers have been granted leniency for payment options, so it is likely they will be urged back on track to pre-pandemic payment practices. Many industries are waiting for demand to normalize, which could take some time. Diversification of suppliers is more of a consideration than ever, which could lead to quite a transformation of supplier management and payment plans. There is currently more opportunity for change than anything we have seen in recent years.

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