Working Capital Trends in the United States: During COVID-19 and beyond

Following on from our Working Capital Trends in Europe research, we switch our focus to North America, as businesses continue to face a myriad of challenges maintaining a healthy cashflow amidst the COVID-19 pandemic.

Cash is a daily necessity of any business, and it is one of the most important financial elements to emerge from a crisis unscathed. Without proper management, cash gets trapped in working capital through inefficient processes, limiting a company’s ability to invest in long-term growth.

A common alternative in situations of low cash availability is utilisation of debt facilities; however, that has become a less attractive option for U.S. firms during the COVID-19 pandemic. U.S. banks have recently tightened their lending standards and loan terms, and the demand for commercial loans in Q3 2020 has dropped to its lowest level in more than a decade, according to a Federal Reserve survey. Besides that, U.S. businesses are being more cautious about obtaining more debt finance due to a less favourable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk – even with FED interest rates at a historical low.

In such scenarios, companies should strive to find alternative means to obtain liquidity. An obvious one is to pursue sustainable improvements in their working capital through structural alignment at the very core of the business. However, our research shows that only 8% of U.S. companies have managed to do just this. And, contrary to a common misconception, these companies have also outperformed the market in EBITDA. 

In this paper, we explore recent working capital trends in the U.S, the key success drivers to free up cash, and how effectively managing working capital can help your business outperform the competition in growth, profitability and liquidity.