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Working Capital Study 23 24
Working Capital Study 23 24
Working Capital Study 23 24
Study 23/24
The Return of ‘Cash is King’
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Executive Summary
Executive Summary
Cash is king once again. As persistently high inflation and The working capital management (WCM) landscape has seen
interest rates force up borrowing costs, making the most a marked shift in recent months. After a challenging few years,
efficient use of available cash is now more critical than supply chains are now stabilising, with the Global Supply
Chain Pressure Index reaching an all-time low in May 20231.
ever. Large corporations are harnessing their tech-enabled
management capabilities to optimise working capital. In last year's PwC Working Capital Study, there were tentative
But most small and mid-sized companies are still signs of recovery and stabilisation in working capital positions.
behind the curve. And while there are glimmers However, the subsequent impact of further rises in inflation
of economic recovery ahead, a still fragile and interest rates have reinforced the importance of cash
outlook demands care and caution from and working capital optimisation. The analysis of 17,000
a WCM perspective. global corporations we carried out for this year’s report also
highlights the growing focus on working capital as a key
financial performance indicator.
Daniel Windaus
Partner,
Working Capital Optimisation
Executive Summary
Executive Summary
Dividends
Improvements are still driven Technology steps into the workforce gap Rich dividends
by large companies
Although the improved efficiency of WCM is With WCM challenges come further opportunities.
Moreover, behind the overall improvements, the encouraging, the challenge of attracting and Our analysis shows a potential €1.5tn of excess
picture is more mixed. The positive developments retaining enough staff to run key processes working capital available, highlighting the rich
in working capital ratios, and the gains made in continues. Experienced professionals are dividends that a renewed focus on cash and
receivables and inventories, are concentrated in in short supply in most developed markets. WCM can bring.
larger and more mature companies. When looking The digitisation of working capital processes
at the mid-cap and smaller organisations, there is therefore increasingly important. But
remains a clear disparity between the key ratios and technology isn’t a silver bullet. With so much
improvements realised. choice, selecting the right tools and defining
a solid business case can be challenging. In
turn, implementation impacts on a wide range
of stakeholders, underlining the importance of
organisation-wide understanding, buy-in and
change management.
Contents Executive Summary Improvement Economic trends Spotlights Digitising WC How we can help Authors & Contacts 4
At a glance
At a glance
Net Working Capital High interest rates Early signs of Cash reserves EU leading the way
are prompting an economic recovery
increased focus on cash
Improvement
Improvement in the
face of challenging
conditions
Contents Executive Summary At a glance Economic trends Spotlights Digitising WC How we can help Authors & Contacts 6
Improvement
NWC Days
of factors, most notably the continued trend in the EU
6.1
(and other regions to a lesser extent) of payment terms
€’tn
regulation, which is limiting the ability of large buyers and
5.8 6
sellers to dictate favourable terms from their suppliers
and customers. Along with these regulatory restrictions, 5.6
concerns over credit risk and input cost increases have
20
led to a tightening of credit from suppliers. 5.3
5
10 4.6
0 4
2018 2019 2020 2021 2022
Improvement
DSO
These movements have come together to improve working 3.4 2.7
capital performance. But while many companies are rising
to the economic challenge of improving NWC, the pressure -0.1 -3.1
to cut working capital requirements will continue.
Equity markets want to see profitable growth and return
on capital, with WCM one of the keys to achieving this.
70.6
66.1
60.4 60.1 58.5
DIO
-4.5 -5.7 -0.3 -1.6
72.7 72.5
67.8 67.5 67.9
5.2
DPO
Improvement
In line with this trend, net debt levels are declining relative
2020 68 to EBITDA, reaching a five-year low of 1.83. Under the
surface, however, many sectors increased their relative net
debt levels – not just in defensive sectors like healthcare –
but also retail, technology and entertainment & media. The
2021 61
overall decline was mirrored in all regions with the exception
of Asia, which saw a marginal increase.
2022 54
Cash days
0 10 20 30 40 50 60 70
(to opex)
2018 2.08
2019 2.28
2020 2.40
2021 1.99
2022 1.83
Economic trends
Economic trends
shaping priorities
ahead
Contents Executive Summary At a glance Improvement Spotlights Digitising WC How we can help Authors & Contacts 10
Economic trends
As the global economy begins to emerge from the turbulence of recent years, there are three key macroeconomic trends that could impact the performance of working capital.
Improved growth prospects Headline inflation coming down, but core inflation is proving persistent
The global economic outlook has The UK economy has largely recovered Headline inflation has fallen in most of In the coming months, we expect CPI
improved significantly since our last from COVID-19, with real GDP estimated the world’s major economies. UK CPI inflation to fall back further in the UK.
report. The OECD now expects that to be around 0.2% above pre-pandemic inflation was 7.9% in June 2023, down The 17% cut to the household energy
the UK, the Eurozone and the US will levels. Recently, however, the UK from a high of 11.1% in October 20223, price cap should reduce inflation by
grow in 2023 by 0.3%, 0.9%, and 1.6%, economy has essentially flatlined, with while inflation sits around 3% in the US another percentage point, while our
respectively – and 1.4% across the no economic growth in the three months and 5.5% in the Eurozone. Core inflation modelling indicates that the price cap
OECD1. Economic growth is expected to May 2023. The main reason is that rates have come down too, but to a could fall by a further 5% in October.
to then gradually pick-up from 2024 consumer-facing sectors remain just lesser extent, while the pace of the There is also good reason to suggest
onwards as inflation returns to more under 9% below pre-pandemic levels2. decline has slowed. Even in the US, that food inflation has peaked.
normal levels and the squeeze on where headline inflation has fallen back The combination of these factors should
consumer incomes eases. However, the fastest, core inflation remains at see CPI inflation get closer to 5% by the
the projected growth is fragile. 4.8%4. The historical evidence suggests end of 2023. Though inflation is unlikely
that core inflation tends to lag behind to return to target until 2025 as services
headline inflation. The latter includes and core goods inflation persist.
short-term movements in energy and
1 OECD Economic Outlook, June 2023
food, so we expect that it will trend
2 ONS downwards, but it may take longer than
3 ONS
4 OECD Stat initially anticipated.
Contents Executive Summary At a glance Improvement Spotlights Digitising WC How we can help Authors & Contacts 11
Economic trends
-1
2020 2021 2022 2023 2024 2025 2026
Note: All data as of 25 July 2023. The forward curves are estimated using the instantaneous forward overnight swap rates in the 15 working days to 25 July 2023.
Federal funds rate is the upper bound of the target range.
Contents Executive Summary At a glance Improvement Economic trends Digitising WC How we can help Authors & Contacts 12
Spotlights
Spotlights on
regions, sectors
and company sizes
Contents Executive Summary At a glance Improvement Economic trends Digitising WC How we can help Authors & Contacts 13
Spotlights
Regions
Figure 5: NWC, DSO, DPO and DIO trends by region
While all leading economic regions saw a decline in the three Eurozone UK North America Asia
areas of NWC, the impact has been uneven.
63.5
58.8 59.2 57.6
The most significant movement in NWC and its underlying 52.2 52.4
54.8 56.0
49.3 48.9
44.2 44.7 44.6 42.4
DSO and DPO metrics has been in the EU (2.6 days 40.9 41.3 41.7 42.7 42.1 39.8
DSO
reduction). The continued rollout of payment terms -6.7 -2.2 -0.6 -2.3 -4.3 -1.6
directives is driving a major reduction in both DSO (6.7 0.1 2.4 1.2 3.2 0.5 0.0 0.4 1.0 9.9 4.8
DIO
to DSO and DPO improvement, the EU also saw a 4.4-day
0.6 3.7 8.9 10.7 0.1 2.4 -1.1 -0.3 2.0 1.2
reduction in DIO, reaching a five-year low.
days. While generally trending downwards, the contraction -1.2 -10.7 -2.5 -0.4 -2.8 -5.6 -2.8
of NWC requirements in the UK has not been as pronounced 4.9 3.9 8.5 3.0 1.1 3.7 0.4 1.0 5.0
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
improvement in DIO of 1.5 days.
Spotlights
Sectors Figure 6: Year on year change in asset days & DPO by sector
Difference in DPO
& logistics mining Retail
receivables during these price increases, with reduced
volatility in demand allowing the sector to operate on a more Consumer
-5 Hospitality
stable inventory position.
and leisure Forest, paper
Transportation & logistics has seen similar gains as it exits & packaging
Technology
from a period of significant volatility, which is reflected
in decreases in both asset days and payables days (5.1 Chemicals
and 3.0 respectively). With the industry having invested -10
Energy &
heavily in streamlining services to customers, the asset day utilities
improvement has outstripped the DPO decline, while the
already slim inventory requirements have remained the same.
Spotlights
Figure 7: Net Working Capital quartile spread by sector Upper quartile Median performance Lower quartile
150 130
126 122
120 108 110
95 99 109
91
90 78 80
DSO
80 75 77 65 73 73
71 61 67 73 59
60 59 59 56 56 49 43
50
41 46 47 38 50 48 38
30 43 45 45 40
32 37 32 36 24 22
24 20
0 17
9 8
250
211
200
167 164
143 141
150 120
129
120 138 129
DIO
100 89 82 84 86
91 80 73 72
70 60
60 65 60 61 56 63 56
50 54 47 54 46 51
52 42 40 36
36 39 33 34 41
28 30 33 28 32 25 31 32
0 23 22 21
200
170
144 149
150 135 131
NWC Days
Automotive
Chemicals
Communications
Consumer
Energy
& utilities
Engineering
& construction
Entertainment
& media
Forest, paper
& packaging
Healthcare
Hospitality
& leisure
Industrial
manufacturing
Metals
& mining
Pharmaceuticals
& life sciences
Retail
Technology
Transportation
& logistics
Source: PwC analysis
Contents Executive Summary At a glance Improvement Economic trends Digitising WC How we can help Authors & Contacts 16
Spotlights
DPO
DSO
of the prompt payment legislation is targeted towards larger 72.2 71.9
buyers who can use their power to influence payment term
70
negotiations. However, small and mid-sized companies did 50
see a decrease as well (2.8 days and 1.7 days respectively). 49.5 49.8
47.2 46.7 67.4 67.3
Small and mid-sized companies experienced relatively little 67.0
40 43.7
movement in DSO, which has remained higher than pre- 65
2020 levels. Large companies saw a 3.1 day decrease and
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
an improvement to below 2019 levels. In DIO, the trends for
large companies and small and mid-sized companies vary
90 90
even more. While large companies noted an improvement
of 1.6 days, both small and mid-sized companies saw a 87.9
86.8
deterioration - 3.2 and 2.3 days respectively. 84.5 83.7 84.7
80 82.3 81.9
80 81.2
80.3 79.0 79.4
70.2 76.2 70 72.7
69.1
NWC Days
70
71.5 70.3 65.2 66.3
DIO
69.1 64.8
60
65.3
60
58.9 50
58.4
56.8
45.8 46.0 39.9 40.1 39.1
50 40
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
Digitising WC
Digitising
working capital
Contents Executive Summary At a glance Improvement Economic trends Spotlights How we can help Authors & Contacts 18
Digitising WC
Process
mining NWC
Cash
Insights & forecasting
analytics
Multienterprise
Integrated planning
demand planning
F2F
Supply chain
Digital supply
design and
Supply planning chain twins
modelling
Contents Executive Summary At a glance Improvement Economic trends Spotlights How we can help Authors & Contacts 19
Digitising WC
Some level of automation such as order processing, invoicing and cash allocation Procurement has become crucial in managing market and supply risks, with technology
has long been the standard for businesses, traditionally relying on heavy system playing a vital role in cost control, supply chain transparency and resilience. Procurement
configuration. This has generally left a number of exceptions to be manually managed, leaders are increasingly being challenged to sharpen efficiency, optimise procurement
while creating the need for additional configuration to keep pace with internal or processes and meet expanding sustainability targets.
external changes.
Companies that are embracing the latest technology are able to achieve significantly
higher levels of automation with close to no manual intervention, while also maintaining
Disruptive technologies
flexibility and scope for change. The largest challenge faced by businesses across the In the drive for efficiency, large best-in-class providers and agile entrants are disrupting
order to cash (O2C) cycle remains the ability to efficiently collect on invoices. Technology the source to pay (S2P) landscape through highly tactical source-to-contract processes,
is not only being used to automate customer interactions – for example dunning – but as well as transactional and volume-based purchase-to-pay processes. Demand is
also to help collection teams pinpoint the contacts where their limited time can be most increasing for solutions which are fully integrated and interoperable with upstream and
valuably used. downstream processes such as supplier relationship management, contract lifecycle
management and third-party risk.
Disruptive technologies
The combination of AI, machine learning and natural language processing is playing
Several disruptive technologies are reshaping the O2C domain, fundamentally altering a key role in contract and tender authoring, as well as accelerating sourcing decision-
how businesses handle credit management and collections efficiency. Artificial making. These developments are also being harnessed to generate insight into spend,
intelligence (AI) and machine learning are being deployed to predict customer behaviour including duplicative payments and monitoring risk and controls across payment
and identify potential delays in payment, allowing companies to react rapidly to potential authorisation processes.
credit risk issues, and influence decision-making in collections.
Large parts of the S2P cycle are also moving over to the cloud, allowing users to
Machine learning is becoming increasingly adept at a variety of internal processes as engage with processes in a far more agile way, while also reducing the burden on
well, in particular cash application, where the matching of remittance to payments had IT teams to maintain and scale the technology foundation through business growth
previously relied on a human eye. Instead, transactions can now be fed through an or transformation.
automated process to ingest various data streams and continually improve accuracy
A number of emerging technologies are focusing on sustainability, covering supply chain
and efficiency.
transparency, renewable energy adoption and carbon and waste reduction control, as
AI can now be deployed in deduction and dispute management, with the ability to read well as ethical labour practices.
natural language and automatically categorise, allocate and suggest resolutions. In some
controlled cases, AI can entirely resolve the issue without intervention.
Contents Executive Summary At a glance Improvement Economic trends Spotlights How we can help Authors & Contacts 20
Digitising WC
Forecast to fulfil
State of play
The supply chain disruptions of recent years have put these technologies further under Making the most of technology
the spotlight and heightened the focus on agility and resilience. Inflationary pressures
Deploying technology can deliver a number of key benefits, including
may spur some industries to revert to pre-pandemic ‘just-in-time’ strategies to better
better transparency, evidence based decision making, process agility,
balance inventory investments against service. Overall, however, the use of technology
and reduced error rates. All of which ultimately improved working
to increase supply chain agility and responsiveness remains a key priority.
capital performance and process efficiency. However, technology will
not deliver performance in isolation and also brings its own challenges.
Disruptive technologies
The primary challenge to overcome is the upfront investment required
Disruption to the supply chain planning solution landscape is primarily focused on an to implement these advanced technologies. This demands a clear and
increased integration of AI and machine learning in the end-to-end planning cycle in compelling business case to secure investment from executives and the
combination with other technologies. Examples include using internet of things (IoT) necessary buy-in from the wider stakeholder community.
enabled-devices to capture real-time data on customer demand. When combined with
AI and machine learning for advanced analytics, the IoT tracking can lead to improved Assembling the data needed to develop a robust business case can be
forecast accuracy, allowing organisations to respond to changing marketplace dynamics challenging, especially where data in legacy systems and processes
earlier and with greater confidence. As these solutions come together, they can help to is of poor quality or unavailable. The challenges can be compounded
intelligently automate processes and speed up the planning decision-making process. by the complex landscape of business solutions and the integration of
data and security and governance requirements, along with the need to
Further developments include the increasing use of ‘digital twin’ technology to manage attract and retain a workforce who have the necessary skills to operate
risk through scenario modelling. Taking this one step further, companies that are able and maintain these digital technologies.
to synchronise and execute planning processes beyond their own four walls and across
the entire supply chain will reap the greatest rewards. The increasing importance of Even once these initial hurdles have been successfully navigated,
environmental, social and governance (ESG) factors globally means that the use of implementation can be problematic. These kinds of technologies affect
supply chain technology to facilitate transparency and reporting on sustainability will also a wide range of stakeholders rather than just the teams most directly
become a key differentiator. involved in the decision-making. This means that full transformation is
required. The big risk is believing that new systems are a silver bullet. In
reality, realising the benefits requires effective buy-in, skills and change
management to solve issues and transform operations.
Contents Executive Summary At a glance Improvement Economic trends Spotlights Digitising WC Authors & Contacts 21
Where and how we could help you to release cash from Working Capital?
Data analytics and insights Working capital operating model design Cash culture implementation and training
Operational process improvements Commercial negotiation and terms optimisation Select and integrate enabling technologies
Cash forecasting process and reporting Short term cash sprints Provide surge capacity and managed service
Contents Executive Summary At a glance Improvement Economic trends Spotlights Digitising WC How we can help 23
Authors &
Contacts Authors
Daniel Windaus
Partner, Working Capital Optimisation
T: +44 7725 633420
E: daniel.windaus@pwc.com
Andrew Brady
Working Capital Specialist
T: +44 7483 417068
E: andrew.brady@pwc.com
Barret Kupelian
UK Chief Economist
Contents Executive Summary At a glance Improvement Economic trends Spotlights Digitising WC How we can help 24
Contacts
Canada
France South Africa Turkey Joe Rafuse
Arthur Wastyn Emma Whalley Arzu Sahin joe.rafuse@pwc.com
arthur.wastyn@pwc.com emma.b.whalleyhands@pwc.com arzu.sahin@pwc.com
Asia
Germany and Austria Spain
Hong Kong & China
Daniel Steiner Francisco J. García Oliva
daniel.steiner@pwc.com francisco_jose.garcia.oliva@pwc.com Peter Greaves
peter.greaves@hk.pwc.com
Japan
Yusuke Onishi
yusuke.onishi@pwc.com
pwc.co.uk/workingcapital
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