From the February 2009 issue of Treasury & Risk magazine

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After months of deteriorating sales, Richmond, Va.-based Circuit City Stores Inc. pulled the plug on its 567 outlets in January as it failed to find a buyer or secure adequate working capital. A few days earlier, the 104-year-old regional department store chain Gottschalks Inc. filed for bankruptcy protection as it sought a buyer or additional capital. Other blow-ups could follow, analysts say, as retail sales remain soft and credit remains tight. Meanwhile, more businesses--even those in far healthier sectors--are bracing for possible cash flow shortages, recent surveys show. Nearly 80% of U.S. companies say economic turmoil has hurt business with 67% citing tightening cash flow as a top concern, according to the Credit Research Foundation, which represents financial and working capital executives of manufacturing and banking companies.

This finding is backed up by a KPMG LLP poll showing that slightly more than 80% of the 550 U.S. and European senior financial executives surveyed cited working capital management as their highest, or high, priority. That's not surprising considering two-thirds reported flat or deteriorating capital, compared with three years ago and only 37% of those respondents had a working capital improvement program in place during the past five years. Of those who lacked a program, 70% predicted working capital will stay the same or decrease. "There is no doubt that companies have heightened cash management concerns today as compared to just a few months ago," says Brad Hillier, a managing director in KPMG's advisory services practice.

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