Working Capital Management

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Working Capital Management

rbs.com/insight

Executive Summary

In November 2011, RBS and Greenwich Associates launched a new study on working capital management among large companies around the world. In conducting the research, the firms interviewed 50 companies in Asia (excluding Japan), Europe and North America. The results of this research reveal that past efforts to build efficiencies in working capital management have been incorporated into post-crisis strategies centred on ensuring adequate liquidity and managing risks. The companies participating in the study are responding to historic levels of market volatility and uncertainty by adopting an extremely conservative approach to working capital management. At the top of their list of priorities are: • Mitigating counterparty risk from banks, suppliers and vendors • Guarding against future funding disruptions by maximising liquidity and • Protecting cash balances from market fluctuations by focusing on capital preservation in their short-term investments

By a wide margin, companies in North America and Asia name liquidity preservation as their top working capital concern; European companies name broader risk management concerns as their top working capital priority. To achieve their objectives, companies are employing a variety of strategies, products, and partners, all with the potential to improve efficiency and limit risk. In addition to accumulating sizable cash positions, companies are centralising treasury operations; integrating working capital functions such as trade finance, cash management and foreign exchange; and automating liquidity management, collection processes and other key elements of working capital management. Among the most important techniques utilised by these large companies to optimise working capital are minimising inventories, reducing days sales outstanding (DSO), lengthening payment terms with suppliers and taking advantage of supplier financing. Because of the significant benefits such steps can deliver in terms of operational and financial performance, RBS and Greenwich Associates expect working capital management improvement to come.

Study conducted in association with Greenwich Associates.

Working Capital Management – looking for visibility, efficiency and control. In these uncertain times, treasurers’ approach to business has remained cautious. Continuing challenges in the Eurozone and external financial markets have led to three main priorities: liquidity management, risk avoidance and capital preservation. We recognise that with the current external environment it is important for companies to regularly assess their banking structures, processes and services to ensure they are continuing to give the treasury visibility and control of working capital right across the organisation. As a network bank, RBS strives to give clients access to international markets by combining global reach with local knowledge expertise and support. As part of our commitment to helping clients manage working capital more efficiently, RBS commissioned Greenwich Associates to take the temperature on working capital management through interviews with 50 large companies across Asia, Europe and North America. The results detailed within this report confirm that conservatism still prevails. Liquidity is important, but the source and methods of holding it have changed: 65% of companies now seek to fund their working capital needs from internal sources. Approximately 60% of companies holding excess liquidity no longer look for long-term income schemes but instead require immediate access. Risk mitigation has also become a major priority, with nearly 60% of companies increasing risk controls since the onset of the financial crisis. This has been achieved through various methods, including centralisation and automation. We’ve supplied you with the report in full as well as commentary on key issues revealed by the research, which we hope you...
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