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Some companies are very good at managing their working capital. Among the best are PepsiCo, HP, and Lennar. Each year from 2011 to 2018, those companies are part of an elite few that have improved their cash conversion cycle each year. The Wall Street Journal’s Mark Mauerer explains further, writing:
The top-performing companies paid suppliers almost three weeks slower in 2018 than typical companies and collected cash from customers almost three weeks quicker—while holding less than half the inventory, data showed. The amount of funds trapped in inventory fell for the first time since 2012 last year. Despite the improvements in the receivable and inventory categories, payables performance deteriorated. Companies have begun to scale back on extending payment terms, thus cutting suppliers some slack.
“Inventories are an untapped area of working capital and they’re more difficult to go after than payables,” Craig Bailey, associate principal at Hackett, said in an interview. “Companies found there’s just not much to be gained going after payment terms.”
Read more here.
