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Slow collection of receivables why manufacturing leaking €177 billion WC

Working capital = first option for funding investment in your business yet PricewaterhouseCoopers’s recent survey of 2,300 global respondents in industrial manufacturing revealed in their Pressure on the Production Line report that:

  • deterioration in net working capital (NWC) days is at a five year high and remains one of the largest when compared to other industries
  • average returns on capital employed (ROCE) has fallen  from 8% 2012 to 7.6% 2016 to

The report reveals that by simply improving working capital, global firms could have freed up as much as €177 billion (bn) of cash during 2017 and better working capital management could have created a cash opportunity of €26.5 bn across Europe.

The overall results are shown below:

Source & Copyright©2018 - PwC 

Another worrying finding is that there has been declining returns and investment:

Source & Copyright©2018 - PwC  

Overall, the survey found that overall the allegation that large companies achieve a better working capital performance by ‘abusing’ their market position and paying small suppliers late does not hold true. Large companies pay their supplier 17 days faster than small companies do:

Source & Copyright©2018 - PwC 

The main cause of poor WCM 

PwC report that, “Contrary to widespread belief, this worsening in the industry’s NWC days is being driven not by excessive inventory, but by slow collection of receivables. The sector’s inability to control trade receivables appears to reflect overall market uncertainty and potential futurerisks.” The report shows that getting paid is the key challenge for manfuacturing companies, as figure below shows:

Source & Copyright©2018 - PwC

Everybody has a role in WCM 

PwC stress that, “All too often, there’s a perception in manufacturing companies that bringing money in and improving working capital performance are solely the job of the Finance function. In fact, these should be part of everybody’s role in every area of the organisation, from procurement to operations. To improve working capital management substantially and sustainably, the workplace culture must reinforce this shared responsibility.”

CTMfile take: Here is yet another report on working capital management showing that excellent WCM is responsibility of everyone in the organisation. WCM is a discipline, a culture.

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