Most still focused on managing inventory rather than ways to release cash: survey
By MICHELLE QUAH 02 October 2009
With the global credit crunch, how companies manage their cash and extract the best value from it has taken on paramount importance.
Yet, a KPMG survey of over 250 Singapore-based companies found that cash management practices here are still too narrowly focused - with 97 per cent of companies focused on managing their inventory, receivables and payables, and missing opportunities to release or find sources of cash from other areas of their business.
The inaugural KPMG Singapore Cash Management Survey 2009 was carried out in June, on small and medium-sized enterprises as well as major multinationals operating here, to learn about the level of adoption of cash management strategies in Singapore.
‘In the light of a challenging business environment, businesses surveyed have been facing a triple whammy of falling demand, a shrinking pool of available credit and requests for longer payment terms,’ notes Bob Yap, head of restructuring at KPMG in Singapore.
‘Organisations have awoken to the fact they may be able to shield themselves from some of its aftermath simply by unlocking cash from their businesses. They are beginning to understand that cash management should be a key element in their operations, and they need to manage their cash effectively.’
Yet, the survey found that only 3 per cent of companies looked to other business areas such as property, investments and tax obligations to release cash.
Only 58 per cent of respondents had implemented a working capital programme in the past two years, and most didn’t have programmes pegged to better-practice standards - resulting in missed opportunities to release cash from an organisation.
Three in four had cash management programmes focused primarily on receivables. More than half indicated they would primarily use cash released from working capital programmes to repay debt.
Among the companies that had actually implemented a cash improvement programme in the past two years, those which focused on areas other than the working capital cycle to release cash were headquartered in the US or Europe, compared to those headquartered in the Asia-Pacific region.
‘A more holistic approach to cash management can greatly improve a company’s ability to take better advantage of investment opportunities and face business risks on a surer footing. It can also help companies increase the amount of cash released within a company’s operations, diversify sources of cash and make it easier to maintain a steady cash flow,’ Mr. Yap says.
KPMG believes that companies should make better use of cash flow forecasting to help with cash flow management and, ultimately, profitability.
Its survey found that some 87 per cent of respondents said that they regularly prepare cash flow forecasts, but only 80 per cent of these companies have a formalised process in place to review the analysis.
‘Being able to better forecast the amount of available cash needed at any given time helps companies to better plan and execute their investments, expenditures and other strategic initiatives,’ Mr. Yap says.
And this is especially the case for smaller companies - which felt that cashflow forecasting was less important to them. ‘Smaller companies often have weaker balance sheets, making accurate forecasting of cash flows all the more necessary. While these cash flows may be smaller, smaller companies may also be more vulnerable to the effects of any disruptions in cash flow, such as delays or shortfalls,’ Mr. Yap warns.
KPMG also believes that business leaders need to do more to instil a cash culture in their organisation - by employing a cash focus at the top and communicating it throughout the organisation.
‘A strong cash culture is important in ensuring that everyone takes ownership of cash issues and has a stake in seeing them managed effectively. It can mean engaging functions such as sales, procurement and operations more meaningfully in the cash forecasting process, or restructuring entire departments,’ Mr. Yap says.
Encouragingly, 83 per cent of respondents that had implemented cash management programmes experienced results which surpassed their original performance targets. Of these, 40 per cent exceeded their performance targets by more than 20 per cent.
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Companies lacking in cash management
Most still focused on managing inventory rather than ways to release cash: survey
By MICHELLE QUAH
02 October 2009
With the global credit crunch, how companies manage their cash and extract the best value from it has taken on paramount importance.
Yet, a KPMG survey of over 250 Singapore-based companies found that cash management practices here are still too narrowly focused - with 97 per cent of companies focused on managing their inventory, receivables and payables, and missing opportunities to release or find sources of cash from other areas of their business.
The inaugural KPMG Singapore Cash Management Survey 2009 was carried out in June, on small and medium-sized enterprises as well as major multinationals operating here, to learn about the level of adoption of cash management strategies in Singapore.
‘In the light of a challenging business environment, businesses surveyed have been facing a triple whammy of falling demand, a shrinking pool of available credit and requests for longer payment terms,’ notes Bob Yap, head of restructuring at KPMG in Singapore.
‘Organisations have awoken to the fact they may be able to shield themselves from some of its aftermath simply by unlocking cash from their businesses. They are beginning to understand that cash management should be a key element in their operations, and they need to manage their cash effectively.’
Yet, the survey found that only 3 per cent of companies looked to other business areas such as property, investments and tax obligations to release cash.
Only 58 per cent of respondents had implemented a working capital programme in the past two years, and most didn’t have programmes pegged to better-practice standards - resulting in missed opportunities to release cash from an organisation.
Three in four had cash management programmes focused primarily on receivables. More than half indicated they would primarily use cash released from working capital programmes to repay debt.
Among the companies that had actually implemented a cash improvement programme in the past two years, those which focused on areas other than the working capital cycle to release cash were headquartered in the US or Europe, compared to those headquartered in the Asia-Pacific region.
‘A more holistic approach to cash management can greatly improve a company’s ability to take better advantage of investment opportunities and face business risks on a surer footing. It can also help companies increase the amount of cash released within a company’s operations, diversify sources of cash and make it easier to maintain a steady cash flow,’ Mr. Yap says.
KPMG believes that companies should make better use of cash flow forecasting to help with cash flow management and, ultimately, profitability.
Its survey found that some 87 per cent of respondents said that they regularly prepare cash flow forecasts, but only 80 per cent of these companies have a formalised process in place to review the analysis.
‘Being able to better forecast the amount of available cash needed at any given time helps companies to better plan and execute their investments, expenditures and other strategic initiatives,’ Mr. Yap says.
And this is especially the case for smaller companies - which felt that cashflow forecasting was less important to them. ‘Smaller companies often have weaker balance sheets, making accurate forecasting of cash flows all the more necessary. While these cash flows may be smaller, smaller companies may also be more vulnerable to the effects of any disruptions in cash flow, such as delays or shortfalls,’ Mr. Yap warns.
KPMG also believes that business leaders need to do more to instil a cash culture in their organisation - by employing a cash focus at the top and communicating it throughout the organisation.
‘A strong cash culture is important in ensuring that everyone takes ownership of cash issues and has a stake in seeing them managed effectively. It can mean engaging functions such as sales, procurement and operations more meaningfully in the cash forecasting process, or restructuring entire departments,’ Mr. Yap says.
Encouragingly, 83 per cent of respondents that had implemented cash management programmes experienced results which surpassed their original performance targets. Of these, 40 per cent exceeded their performance targets by more than 20 per cent.
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