National Habits Complicate Working Capital Management

by Patricia McGinnis 0

For many businesses, a measure of success inthe treasury area is the firm’s ability to keep its days salesoutstanding (DSO) as low as possible, and preferably below thirtydays. Citing research from REL Consulting, a division of TheHackett Group, CFO Magazine reports that when a firm hasinternational customers, it should expect to encounter culturaldifferences in payment practices, and different views about workingcapital.

REL Consulting studied 925 companies with a particular focus onEuropean firms. The data showed that Spanish and Italian firms werethe worst at collecting receivables promptly, with DSO commonlybetween 70 and 75 days. Not surprisingly, firms in those countriesalso took longer to pay their own bills. The disparity between billpayment practices and receivables collection practices was found tobe greatest in Germany and the Scandinavian countries. Firms ofthose nationalities typically paid their bills relatively promptly(with days payables outstanding of 30-35). However, they were farless efficient at collections, with DSO around 50, with associatedgreater strain on available working capital.

The diversity of national norms about bill payment, andexpectations about bill collection, will result in rather differentoutcomes from country to country for those firms attempting to moveto electronic invoice management, electronic matching, andelectronic bill payment. It is challenging enough just within theU.S. market to understand how electronic payment and its associatedacceleration of these processes works differently to the benefit ordetriment of buyers and suppliers. Firms with multinationalcustomer and supplier relationships will have to be prepared foreven more complexity. At the least, firms should use counterpartynationality as a variable in the metrics monitoring their abilityto collect receivables efficiently.