Read the complete results of the 2010 working capital survey, or review just those results that appeared in print.

While most observers view 2009 as the very heart of the Great Recession, it was also — in terms of working capital — the beginning of the Great Hangover. As 2008 drew to a close and the full extent of the financial crisis became clear, many companies scrambled for cash by pushing down hard on every available working capital lever at their disposal.

For them, it was payback time: inventories had to be replenished and overdue bills were finally paid in full. For other companies, those further down the supply chain or with longer cycle times, the full recession didn't hit until late in the year, when unsold inventory swelled, customers lobbied suppliers for longer payment terms or discounts, and those suppliers asked their suppliers for leniency.

Either way the result was the same: 2009 was one of the worst years ever for corporate working capital performance, and certainly the worst that CFO has reported since it began keeping track of working capital trends more than a decade ago.

Average days working capital (DWC) for 1,000 of the largest U.S. public companies jumped by 8.2%, according to the CFO/REL Working Capital Scorecard. That rise, to 38.3 days in 2009 from 35.4 days in 2008, marks the biggest DWC deterioration in the last five years for that universe of large companies.

Among the elements that make up working capital, days sales outstanding (DSO) performance deteriorated by 10.4%, marking a glut in receivables that was balanced almost evenly by an 11.4% jump in days payable outstanding (DPO). And the combination of companies replenishing their inventories after 2008 and those still stuck with unsellable product in 2009 caused days inventory outstanding (DIO) to burgeon by 8.8%.

The question now is whether U.S. companies can turn that pain to gain. The latest figures essentially put companies back to 2006–2007 levels of performance, a period during which working capital gains stagnated after years of improvement. Made leaner and more efficient by the recession, companies should be able to wring more cash from working capital this year without relying on the still-thawing credit markets.

Yet during volatile economic times, companies often go for "low-hanging fruit" — simply delaying payments to suppliers, for example, or stopping production of slow-moving products. Those knee-jerk responses are a far cry from the "sustainable working capital program" advocated by REL president Mark Tennant. If an economic upturn takes hold, will companies be able to manage inventories, collections, and payments efficiently under all conditions, or will they struggle to refocus on these key processes?

Silver Linings
Amid the wreckage there were some encouraging signs, and a number of companies performed well. "You have to keep in mind how fast the market was recovering at the end of the year," says Stacy Smith, the CFO of Intel, referring specifically to the technology industry. Although the big chipmaker saw a 42% DSO deterioration for the entire year, "it wasn't that there had been an aging of receivables back to us, it was just that there was a big increase in revenue that we hadn't yet been paid for," he says.

Moreover, for quite a few companies, adversity proved the mother of sustainable invention. By the fourth quarter of 2008, senior executives at Cytec, a large chemical supplier that shone in this year's scorecard, knew they had to act to deter a difficult situation. The company had $250 million in debt due in 2010, and "investors were questioning our liquidity," says CFO David Drillock, adding that the company also had to alter its cost structure because sales volumes were dropping. Based on previous benchmarking, management saw an opportunity to squeeze cash out of Cytec's supply chain. The company then launched a major effort to increase its performance across all three major areas of working capital.

In its efforts to lower its DSO, Drillock consulted with finance chiefs at several private-equity firms because of that industry's reputation for excellence in managing accounts receivable. They advised him not to overanalyze accounts but to contact customers before problems arose. Following their lead, Cytec focused "on proactive collections, rather than waiting for something to be late."

To better manage inventory, the company divided its various products into low- or high-volume sellers. Managers then made decisions about which products to stock and which to make to order based on sales volumes. Cytec similarly employed different accounts-payable strategies for its low- and high-volume suppliers. "On the infrequent, low-volume vendors, it was easy to just extend terms as new purchases were made," Drillock said. "On the higher-volume vendors, we worked with them," sometimes offering them more volume for better payment terms.

The overall results were impressive: Between 2008 and 2009, Cytec's DWC dropped from 77 to 59. Thus, while its revenue was off by 23% in 2009, the company was able to mitigate the shortfall by shaving 24% off working capital days.

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