Working Capital Management
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
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