- 37 percent of larger companies want to shorten their customers' payment terms - only 29 percent of smaller companies are trying to do so
- Only a reduction in inventories is being tackled by the majority of both larger and smaller companies
- Many companies are currently leaving a large part of the potential for optimising working capital untapped
Almost two thirds (60 percent) of companies want to reduce their inventories, 46 percent have already started to do so. Every second company (54 percent) is working on extending payment terms to suppliers, 38 percent have already implemented this. It is striking that 69 percent of large companies with 1,000 employees want to extend payment terms, compared to only 38 percent of smaller companies.
"Working capital has once again become a focus for improving the liquidity situation," says Dr Henning Syllwasschy, Partner at FTI-Andersch, the consulting unit of FTI Consulting in Germany that specialises in restructuring, business transformation and transactions. "In many industries, warehouses are too full. This is due to overproduction from the outbreak of the coronavirus pandemic or deliberate stockpiling due to vulnerable supply chains. Almost everywhere, work is now being done to reduce stocks. Both large and small companies are working on this to the same extent. At the same time, larger companies are clearly emphasising their market power by unilaterally extending payment terms to their suppliers. Only those who continue to purchase large volumes can afford to do this."
Most measures to optimise working capital are only being tackled by a minority of companies
The larger companies are also taking a more determined approach to optimising their working capital. 40 percent want to reduce their receivables, for example through factoring (cf. smaller companies with fewer than 1,000 employees: 19 percent). One in two (52 percent) larger companies are targeting the avoidance or reduction of advance payments to suppliers (cf. small companies: 30 percent). 37 percent want to reduce their customers' payment terms and thus achieve rapid settlement of their outstanding receivables (cf. smaller companies: 29 percent).
Almost the same number of both larger (29 percent) and smaller (32 percent) companies are working on improving their own liquidity situation through earlier and/or higher advance payments from customers.
"While the majority of larger companies are actively optimising their stock levels, payment terms to suppliers and reducing advance payments, smaller companies are only focusing on optimising their stock levels," says Henning Syllwasschy. "It can therefore be assumed that the larger companies will gain a competitive advantage from the situation. Overall, however, regardless of the size of the company, it can be stated that although working capital management has become more of a focus, not all of the available instruments are actually being utilised. The majority are currently leaving potential untapped on the street."
Companies are more pessimistic about 2023 - which is precisely why they need to pay more attention to liquidity
This is despite the fact that the economic situation for the current financial year is viewed much more pessimistically. Only just under a third (35 percent) of the companies surveyed still expect an increase in turnover - compared to 59 percent in the previous year. At the same time, two thirds (66 percent) expect a further increase in costs, particularly in the areas of energy (85 percent) and personnel (81 percent). In addition to price and interest rate increases (71 percent), the companies surveyed see the shortage of skilled workers (77 percent) and geopolitical conflicts (66 percent) as major influencing factors.
Henning Syllwasschy says: "The working capital management measures that have been introduced in many cases underpin the recessionary trend in the German economy. This is precisely why it is now essential for companies to ensure that they have sufficient liquidity buffers, and not just for the next few months. Those who do not prepare for the new economic reality now at the latest can quickly become restructuring candidates in the new year or slip into an even worse state. This is why companies' CFOs are particularly challenged in the current situation."
About the study by Kantar Public:
As part of the 'Supply Chain Barometer 2023' study, the market research company Kantar Public was commissioned by the management consultancy FTI-Andersch to conduct a telephone survey of 150 companies in Germany from the 'manufacturing industry' sector, focussing on automotive suppliers, mechanical and plant engineering and consumer goods, on current issues relating to locations, production relocations, cost increases and other supply chain topics.
The companies have a turnover of at least 50 million euros. Around a third of the companies surveyed generate more than 500 million euros per year. The percentage figures were weighted by sub-sector based on their share of the manufacturing industry.
FTI-Andersch is a management consultancy that supports its clients in the development and implementation of viable future/performance and restructuring concepts. FTI-Andersch actively supports companies that have to deal with operational or financial challenges and change processes - or want to align their business model, organisation and processes for the future at an early stage.
Its clients include in particular medium-sized companies and groups that operate internationally. FTI-Andersch is part of the FTI Consulting Group (NYSE: FCN) with more than 8,000 employees worldwide.