Better DPO Management Emerges as Key Outcome of Working Capital Efficiency

For enterprises of all types and across all industries, tariffs, trade wars, reconfigured supply chains and inflation are all top of mind.

Dynamic times call for dynamic, sometimes spur-of-the-moment decision making. Middle-market growth corporates, defined as companies with $50 million to $1 billion in annual revenues, want to keep growing and frequently rely on supply chains that stretch across borders. The right combination of payments methodologies, timing of payments and working capital solutions can help tie those supply chains more tightly, as buyers capture the loyalty of their suppliers.

Part of an optimal strategy entails savvy days payable outstanding (DPO) practices, where buyers want to hold on to cash as long as possible and suppliers want to get that money with speed.

Visa and PYMNTS Intelligence worked together to survey nearly 1,300 chief financial officers and treasurers across eight industries worldwide to get a sense of how, when and why they’ve tapped into working capital solutions to improve their own cash flow outcomes, which can have positive impacts across their vendor relationships.

In addition to two annual reports that create a blueprint for success for industries spanning eCommerce, media, tech and healthcare (to name a few), Visa and PYMNTS Intelligence created a dynamic benchmarking report that can help users take a deeper look into how their DPO and other metrics stack up against peers and outperformers within their chosen industries.

There’s wide recognition that working capital solutions, such as virtual cards, can improve the flow of funds in B2B settings. Visa and PYMNTS Intelligence found that 72% of surveyed corporates reported that the use of working capital solutions had a “positive impact on buyer-supplier relationships.” More than two-thirds of respondents also indicated that using those solutions allowed them to take advantage of new business opportunities.

The user interface and interaction to create the reports are streamlined and simple, as executives tailor the inputs by region, industries and other metrics, including top-line ranges, the ways in which inventory and financing have trended, and the overall movement of days sales outstanding (DSO). The lower the DPO and the cash conversion cycle metrics, the more efficient the operations are.

Lower DPOs mean that a firm is paying its suppliers more quickly, and the suppliers will want to keep relationships intact with industry growth corporates that have a track record of paying bills on time, or even early. There’s also an input through which users of the report can indicate how tightly a supplier is integrated into the buyer’s order and payment systems.

The higher the proportion of suppliers that are integrated into these systems, the more automatic payments can become, and the more readily a supplier can indicate their preferred payment methods (of acceptance) and offer discounts for speedier payments (which in turn improves the buyer’s cash flow).

The personalized score provides a clear snapshot of where a given firm stands and points the way toward the areas that need to be improved, at least to scale new operational heights versus peers, if necessary.

Firms that scored in the top 20% of the index were classified as top performers. There’s no one-size-fits-all approach to working capital management, but there is an embrace of working capital solutions.

The data from Visa and PYMNTS Intelligence indicated that 81% of these firms used at least one external working capital solution in the past year, and 37% of invoices were paid last year before the due date, which lowers DPOs and keeps suppliers’ own operations humming.

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