Survey shows a good deal of pessimism

Nov 11 2009 by Peter McCusker, The Journal

BUSINESSES have pushed cash generation up the agenda in response to the changing demands of analysts, lenders and ratings agencies, according to KPMG's second annual cash survey.

The survey has found an increased focus on cash management is yielding results in forecast accuracy with only 38% of respondents saying they had missed their targets this year, a great improvement on last year’s 91%.

Indeed, a third of respondents exceeded their forecasts. But despite the improved cash management, companies are not optimistic about the future and their cash management tactics could hinder economic recovery.

Kenny McKay, restructuring partner at KPMG in the North, said: “Where companies last year were most worried about the rising cost of debt, they are now worried about the needs of their banks and other stakeholders.

“This is reflected in a change in strategy: 50% of respondents have now implemented a working capital improvement programme compared to just 2% last year.

“Somewhat surprisingly, while companies are increasingly hitting cashflow forecasts and improving working capital they are not positive about the future: 55% expect no improvement in working capital in the next 12 months and the greatest concern is about customers stretching payments terms.

“Our findings also show how companies plan to respond to worsening economic conditions: 68% are planning to slash capital expenditure; 45% tighten credit lines to customers and 33% negotiating longer payment terms from suppliers. This does not bode well for return to economic growth.”

The improvements are more limited within smaller companies in which only 37% expect an improvement in working capital in the next year, compared to 53% of the largest companies surveyed, and 49% missed their forecast cashflows, a situation shared by just 40% of the largest companies.