Hackett

Largest U.S. Cos Hit a Ceiling on Delaying Supplier Payments; Payables Challenges Drive Worsening of Working Capital Performance

The largest U.S. companies found it much harder to extend payments to suppliers in 2022, and have likely hit a ceiling on the practice of supplier payment terms optimization that has historically helped them bolster their balance sheets, according to new working capital research from The Hackett Group, Inc. (NASDAQ: HCKT).

An analysis of data from 1,000 of the largest U.S. public companies by The Hackett Group showed that in 2022 days payable outstanding (DPO), or the number of days companies take to pay suppliers, decreased by nearly five days, or 8%.

After a rare Triple-Crown event in 2021, where companies saw improvement in all three working capital management metrics – receivables, payable, and inventory – companies saw their overall working capital performance or cash conversion cycle (CCC) worsen by 3% in 2022, as they faced major headwinds such as inflationary pressure on costs, supply chain disruptions and increased geo-political instability. While receivables (days sales outstanding or DSO) improved by 5% and inventory levels (days inventory outstanding or DIO) improved by 3%, the improvements were eclipsed by the significant degradation in payables (days payables outstanding or DPO).

Contributing factors to the improvement in inventory performance (DIO) were strong demand that depleted inventory levels and lessons learned during the pandemic, which has led best-in-class companies to take a more strategic approach to inventory management and rely on technology to optimize inventory amid sustained and shifting customer demand, the research found.

Receivables (DSO) performance improvement was mainly driven by double-digit improvements in consumer durables, recreational products, airlines, and oil and gas, which saw strong demand as a result of continued economic rebound. DSO in other industries benefited from the expansion of subscription models and business-to-consumer sales channels as those continue to alter the customer/supplier dynamic and positively impact receivables performance.

These U.S. companies now have almost $1.9 trillion tied up in excess working capital, the research found, including $666 billion in excess inventory, $665 billion in payables, and $531 billion in receivables. Top performers now collect from customers 42% (19 days) faster, hold 59% (41 days) less inventory, and take 52% (25 days) longer to pay suppliers.

The Hackett Group’s 2023 Working Capital Survey is currently featured on CFO.com. A summary of the research findings, including detailed industry analysis and working capital improvement recommendations, is available on a complimentary basis, with registration, at this link: https://go.poweredbyhackett.com/23wcscc2306