But playing fourth-quarter games is a hard habit to break. The obvious reasons are because companies want to meet analysts' expectations and show investors the best possible result in the 10-K. "They are painting a false picture to the investor community," comments Payne. Compensation is another big motivator, he notes. If managers' pay is tied to year-end goals for cash flow or working capital, they will be tempted to play year-end games.

For those who care about effective supply-chain processes, healthy customer and supplier relationships, fatter margins, and just plain old integrity, renouncing yearend gamesmanship is required, says Payne. To that end he recommends:

• Base compensation tied to working capital and cash flow on a rolling 12-month period. This will reduce the emphasis on fourth-quarter and period-end results.

• Stop pulling orders forward. Eventually, sales will be better distributed throughout the year and margins will improve.

• Collaborate with suppliers instead of alienating them by delaying payments.

• Redesign processes so that working capital is reduced every month, not just at period-end.

The Scorecard
The Year-End Gamesmanship Scorecard that appeared in print is culled from REL's survey of the 1,000 largest (by sales) U.S.-headquartered public companies. The data source is Capital IQ. Results are shown for 20 of the 57 industries covered.

The scorecard shows days working capital (DWC), a metric that provides a clear picture of net working capital on a quarterly basis. The complete scorecard for all 57 industries, which also shows DIO, DSO, DPO, and weighted working capital for the past three year-ends, can be found here.

Edward Teach is articles editor of CFO.

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