Allianz Trade’s global WCR hits 16-year high

The rise was due to high inflation and financing costs.

Allianz Trade’s Global Working Capital Requirements (WCR) reached a 16-year high increased to 76 days (+2 days compared to 2022) for the third consecutive year in 2023. The increase was due to the softening economic growth with higher inflation combined with the higher cost of financing.

All regions also experienced a rise in WRC with APAC adding 2 days, China (+3), Japan (+3), North America (+1), Europe (+1), France (+5), and Germany (+5).

Meanwhile, Days Sales Outstanding (DSO) was the key driver of the annual rise in global WCR, almost doubling 2022 figures, increasing +3 days to 59 in 2023. This increase indicates that companies are waiting longer to get paid, raising the risk of cash-flow issues.

As of 4Q23, 24% of companies recorded DSO above 60 days of turnover while 6% face DSO above 120 days of turnover. At the same time, Days Payable Outstanding (DPO) stayed constant at (+0 days to 35) and Days Inventory Outstanding (DIO) slightly dropped (-0.4 day to 52 days).

APAC recorded the largest increase (+3 days). Regionally, China and Japan recorded (+3) while South Korea (+2).

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DSO also increased in other markets except in Australia but they all recorded a drop in WCR due to the reduction in inventories in Australia, Taiwan, Singapore, and Hong Kong and lower DPO in India.

As of 4Q23, WCR in APAC stood at 81 days of turnover, with DSO above the global average at 63 days.

Like the Middle East, APAC also has the highest percentage of firms facing extended DSO and cash-flow risks, with 21% of companies paid after 90 days, compared to the global average of 17%.

In addition, almost all sectors have experienced a rise in DSO, leading to higher WCR for most, despite less pressure from inventories.

Out of Allianz’ panel of 22 sectors, 13 saw a rise in global WCR in 2023 led by machinery equipment (+7 days), software/IT services (+7), construction (+7) and commodities (+8) and followed by pharmaceuticals, electronics, B2B services and energy.

Meanwhile, the three sectors with the lowest WCR in 2023 were hotels/ restaurants/tourism (14), other B2C services (27), and transportation (29).

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