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Working Capital Management: There Goes the Rigor

Improved working capital provides sunshine during recessions rain showers.

By Russ Banham | Updated on June 13, 2013
From a corporate perspective, the dark clouds of the recession did have one silver lining: Companies improved their working capital performance. With revenue opportunities stalled, if not declining, organizations enhanced their working capital due diligence, growing margins by taking an ax to days sales outstanding, payables outstanding, and inventory.

No sooner did the dark clouds disperse, however, than some companies went back to their old ways of mismanaging working capital, effectively letting go of the rigor. In their eagerness to land new customers, some companies extended payment terms and let inventory levels rise so that they would have enough product in the pipeline and on the shelves to satisfy percolating demand.

Wouldn’t it be better to strike a balance between diligent working capital management and giveaways for revenue opportunities? The answer is yes, but the solutions are not easy. “There is great value in finding some equilibrium,” said Miles Ewing, principal and head of the financial performance management practice at Deloitte Consulting. “But getting there requires metrics, flexibility, and a bit of give and take.”

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