Survey Highlights

In 2023, McGrathNicol Advisory conducted a survey of CFOs from SME and larger organisations to understand how they manage working capital. The survey responses are particularly insightful given the challenging macroeconomic environment faced by participants across most sectors. Managing working capital well is fundamental to strong cash flow, and astute business leaders can carve out a real competitive advantage by giving it the right level of attention as they head into 2024.

Managing working capital was difficult in 2023 and is expected to get harder in 2024

Despite our analysis showing a reduction in average DWC across all sectors, 73% of our survey respondents indicated that they had to work hard to manage working capital in 2023. Against the backdrop of challenging market conditions, 70% of respondents expect that it will become even more difficult to manage working capital and cash flow over the next 12 months.

Better process results in better outcomes

Interestingly, 57% of our survey respondents identified a lack of clear processes and / or accountabilities as the key challenge to improving working capital. This highlights the importance of a strong framework for working capital management that has standardised procedures, agreed accountabilities, and clear roles and responsibilities for finance and operational staff.

Automation and data can drive a step change in working capital

Automation and data integrity are important for longer term, sustainable working capital improvement, with 47% of our survey respondents identifying technology, systems or data limitations as a key challenge in 2023. For growing businesses, identifying opportunities to automate billing, collection and payment processes can shorten working capital cycles considerably and release staff capacity for other more strategic purposes.

Pressures on management time will continue

CFOs are resource-constrained, with 37% of our survey respondents concerned that they do not have the availability of staff or sufficient time to put into working capital management. Interestingly, the pressures appear to be manifesting in the customer collections cycle, with a third of the respondents pointing to slow paying customers as a key challenge. To counter the cash flow impact, 57% of respondents intend to reduce costs or attempt to access additional capital in 2024.

Inventory management needs a flexible and disciplined approach

Despite our analysis showing an unwinding of COVID-level inventory holdings in 2023, 33% of our respondents remain concerned about a supply chain disruption or slowing demand leading to another build-up of inventory. With unpredictable demand, inflationary pressures, environmental concerns, and continued international political instability, a disciplined yet flexible approach to inventory management is required.