Traditional ways to improve a company's cash flow include getting customers to pay more quickly and waiting as long as possible to pay suppliers. But a survey by Aberdeen Group shows that while the best performers are trying to get customers to pay more quickly, they are also paying their own bills more promptly.
Aberdeen's survey of 130 companies ranks them in three categories--best in class, average and laggards--based on how quickly they collect the money owed them--their Days Sales Outstanding (DSO)--and the accuracy of their cash flow forecasts. According to the survey, companies see accounts payable as the key to improving their cash position. Those judged best-in-class had an average DSO of 21 days, vs. 39 for middling performers. But the best performers also paid the bills they owed--as measured by Days Payables Outstanding (DPO)--more quickly, in 34 days, vs. the 41 days it took average companies to pay their bills. Nasreen Quibria, a senior analyst at Boston-based Aberdeen Group, notes that the 34-day DPO for best-in-class companies is down from 62 days in 2007.