CFOs Who Stop Liquidity Leaks Today Will Be in Good Shape to Fund Expansion Moves when the Recession Lifts

Survey finds 90 percent of finance executives taking active steps to generate more cash internally-a strategy many neglected during the era of easy money

CFOs Who Stop Liquidity Leaks Today Will be in Good Shape to Fund Expansion Moves When the Recession Lifts

(Houston, TX - April 28, 2009) - Nine out of 10 finance executives report that their companies have reassessed liquidity management and made it a top corporate priority.  Nonprofit research firm APQC surveyed a cross-section of North American CFOs and treasurers about how their liquidity management practices have changed given today's economic conditions. Both the survey results and a new APQC white paper, "Cash Flow is Oxygen in Turbulent Times," may be downloaded at no cost from www.apqc.org/liquiditymgmt.

According to the survey results, CFOs are taking proactive measures to ensure they have the cash they need to make payroll and keep the lights on.  In addition, they want to demonstrate to banks that their forecasts of future cash flows are believable.  Some CFOs, however, are also thinking along strategic lines: They want to boost liquidity levels so that, if and when an expansion opportunity emerges, they will have a cache of cash at the ready.

"Companies that are successfully weathering the economic storm are preparing to pounce on weakened competitors," says Mary Driscoll, APQC senior research fellow for finance. "Even those firms that are more cautious about embarking on any expansion plans are working hard to release cash that is trapped in operations, inventory, or receivables."

These efforts to free up cash are driven in part by a need to reduce reliance on third-party funding, including bank loans, lines of credit, and new bond offerings. For many non-financial companies, external capital has become too expensive and/or difficult to obtain due to the tight credit market. Moreover, "adding more debt to the balance sheet is not an option for companies worried about further downgrades by the credit rating agencies," Driscoll explains.
 
Survey results also indicate that working capital management practices have only recently become a major topic of discussion in the C-suite. Until now, most companies did not routinely discuss working capital management during performance reviews with business leaders.

"Surely, companies are now looking for quick fixes to accelerate their cash conversion cycles and intervene when important customers change their payment patterns. What's more, many CFOs see this as an opportunity to create lasting process improvements in working capital management. CFOs have long memories, and they won't soon forget having their access to credit painfully pinched by bankers," Driscoll says.

When asked what areas they would immediately target for improvement, CFOs and treasurers cited:

1. more accurate customer demand forecasts,
2. faster intervention on late-paying customers,
3. better alignment of inventory and demand,
4. electronic bill presentment/collection, and
5. working with key suppliers for better terms.

APQC conducted the Liquidity Management Poll in March 2009 as part of its current research focus on working capital management during the recession. A total of 192 surveys were completed, including 78 by senior finance executives from large corporations. APQC is discussing its findings and best practices in liquidity management in a series of Finance Forums taking place across the United States and Canada. These Finance Forums are being produced by IBM Cognos.  Mary Driscoll will also be keynoting CFO Magazine's Webinar, Providing Cash Flow (Oxygen) in Turbulent Times, on May 5 at 12 p.m. Eastern. The Webcast will review how CFOs can improve working capital management practices to combat liquidity pressures.  For more information, visit http://www.apqc.org/lmwebcast.

For more information on APQC's liquidity management research and services, contact Mary Driscoll at mdriscoll@apqc.org or +1.713.681.4020, x7250.

About APQC

APQC is the leading resource for performance analytics, best practices, process improvement, and knowledge management worldwide. Our research studies, benchmarking databases, and renowned Knowledge Base provide managers with intelligence to transform their organizations for better results. A member-based nonprofit founded in 1977, APQC currently serves over 750 of the Fortune Global 1000 companies and numerous government organizations. For information, visit www.apqc.org or call +1.713.681.4020.

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