This is reflected in a change in strategy, with a marked increase in those implementing working capital improvement programmes. This change of approach has been necessitated by the increase in working capital: 45 percent of respondents have seen deterioration in working capital compared with one percent last year.
Great focus is having a positive impact on cash flow forecasts; while 91 percent of respondents said they had missed their targets last year, only 37 percent said the same this year. Indeed a third of respondents exceeded their cash flow forecasts this year. While it's always better to exceed forecasts than miss them, poor accuracy necessitates higher credit facilities than may be required restricting cash available for other business opportunities.
Somewhat surprisingly, while companies are increasingly hitting cash flow forecasts they are not positive about the future: with 55 percent expecting no improvement in working capital in the next 12 months. Companies are most concerned about customers stretching payments terms and getting into financial difficulty. They are also negative about the economic environment overall, believing current conditions will reduce capital expenditure and increase their bad debt exposure.
Five key findings from our research:
- 59 percent of respondents said the main trigger for focussing on cash was pressure from stakeholders, compared with just 12 percent last year;
- 47 percent missed cashflow forecasts this year, compared with 90 percent in 2008;
- 45 percent saw an increase in working capital, compared with one percent last year;
- 50 percent of respondents have instigated a working capital improvement programme this year, compared with just 2 percent last year;
- In response to the tightening credit market: 67.5 percent are reducing or stopping capex; 62.5 percent are seeking to improve cash generation and 45 percent are tightening credit lines to customers (multiple choice).
What remains to be seen, is whether stringent cash management will retain its importance in analyst and credit rating agency assessments when the upturn comes.
Ultimately board behaviour will be heavily influenced by the views of lenders, analysts and credit rating agencies. Unfortunately our research suggests that best practice is not being ingrained into the DNA of companies. While 83 percent of our respondents placed cash management as a top five strategic priority, only 33 percent link management incentivisation to cashflow targets.
Cash is the life blood of the business but history teaches us that it is all too easily forgotten in the boom times.