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Eye on Working Capital Performance: Median Companies Are Falling Behind

After a rare 2021 “Triple Crown” that saw improvement in all three working capital metrics, 2022 was a year of course correction.

By Shawn Townsend, István Bodó & James Ancius | August 03, 2023 at 04:13 PM
Stock illustration: Looking forward.

When The Hackett Group last analyzed working capital performance, at the midpoint of 2022, we saw early signs of deterioration in days payables outstanding (DPO) performance. We noted that this trend might signal an inflection point in companies’ ability to continue improving their balance sheet by further extending payment terms with suppliers.

For more than a decade, lengthening payment cycles was companies’ easiest option for improving working capital performance, and many organizations came to rely heavily on it. Indeed, our prediction that this approach might no longer be working as well proved true in the second half of 2022. As our newly released “2023 Working Capital Survey” reveals, DPO deteriorated sharply throughout last year, and the percentage of total excess working capital attributable to accounts payable increased by a stunning 33 percent.

Additionally, all three key components of working capital, as well as the overall cash conversion cycle (CCC)—the high-level proxy for working capital performance—moved with greater magnitude in 2022 than they typically do. Excluding the pandemic years and the 2009 financial crisis, our working capital studies usually record modest movements of between 2 percent and -2 percent. Last year, all four metrics moved by 3 percent or more, in one direction or the other.

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