Companies focus on lowering DPO and DSO to improve their working capital performance

In the wake of the recession, companies have been working to replenish inventories and recover overdue payments to help get their operations back on track.

In 2009, working capital performance suffered greatly, with average days payable outstanding jumping by 11.4 percent and days sales outstanding performance deteriorating by 10.4, CFO magazine reports.

Organizations adopted different strategies in 2010 to improve their working capital performance. Thomson Reuters centralized its accounts payable operations, which caused short-term difficulties but resulted in a more sustainable working capital improvement.

"What hurt us is that we got better at paying, and it actually shortened our DPO," Robert Daleo, Thomson Reuters' CFO, told the source. "But we also consolidated all of our vendor agreements and got much better terms."

Companies can also improve their accounts payable operations by hiring an accounts payable recovery audit firm to identify errors such as duplicate payments and highlight breakdowns in business process such as paying vendors on incorrect payment terms.

Cytec, a large chemical supplier, focused on lowering its DSO and improving its inventory management, a strategy that made it one of 2010's best-performing companies, according to the source. 

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