Some companies use more tailored metrics. For example, fragrance company Coty Inc. uses management cash flow, which measures cash flow capability at the local level using only those variables the local business unit is able to control. Kellogg Co. uses percentage of net sales — the 12-month average of receivables and inventories, less the 12-month average for payables, divided by the last 12 months of sales performance.

Either way, the incentives have to be linked to every individual who touches the working capital process, some executives say. At Merillat Industries LLC, a manufacturer of kitchen and bathroom cabinetry, "it's top to bottom," says CFO W. Jay Potter. "Even our accounts payable clerks' compensation includes days purchases in payable metrics, because a lot of what they do affects how quickly you issue the check."

This article is excerpted and adapted from Excellence in Working Capital Management, a report that summarizes the findings of a mail survey of executives at 196 companies and in-depth interviews with executives at 16 companies. CFO Research Services and GE Commercial Finance developed the hypotheses for the research jointly. GE funded the research and the publication of the findings; CFO Research Services produced the final report. You may download a copy of the full report by filling out a brief form.

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