Aon Study Shows Businesses in Asia Pacific Taking Longer to Convert Working Capital into Cash, Affecting Liquidity

The study examines the working capital performance and practices of more than 900 companies across 21 industries and 12 countries/territories in the Asia Pacific region.

According to the report, the average days receivable for Asia Pacific companies for year ending 2023 was 71 days. Although a small increase from 2022, an increase in days receivable reflects a decrease in working capital availability and indicates slower collection of cash from customers.

The report also reveals significant variations in days receivable across industries and countries/territories, highlighting the need for regional and sector-specific solutions. In the financial year ending 2023, companies in Japan reduced their days receivable by five days to 42 days and now lead the region in days receivable performance. Conversely, companies' days receivable increased considerably in Hong Kong at 65 days (+3.6), Thailand at 64 days (+2.6) and India (+2.7). While Hong Kong and Thailand remain below the regional average of 71 days, India fell further back to 100 days, emphasizing an opportunity for Indian corporates to optimize their working capital management.

Steve Taylor, head of credit solutions in Asia for Aon, said: "Working capital is crucial for any business, especially in times of uncertainty and volatility. When companies take longer to convert their working capital into cash, it can affect their liquidity and profitability. Businesses must identify areas for improving working capital availability and implement strategies such as using credit insurance to protect against the risk of non-payment, support revenue growth and secure financing. By applying data-driven insights companies can make better decisions to optimise their working capital management and generate significant value for their business."

Benchmarking against industry competitors is crucial for identifying areas for improvement in the working capital cycle. Japanese corporates, for example, are the regional leader in days receivable across all sectors, however within the electrical products sector they fall behind the industry average and are 27 days slower than their Korean competitors in the same sector.

The report suggests that best-in-class companies can leverage working capital efficiencies to generate free cash flow and reduce debt levels demonstrating the strategic importance of effective working capital management.

Ankit Tambe, regional director, credit solutions in Asia for Aon, said: "Benchmarking an organisation's days receivable against peers is an important step in assessing financial health and evaluating working capital performance. By reviewing credit solutions strategies to shorten the cash conversion cycle and unlock trapped capital, organisations can drive greater value creation and enable business growth."

For more information about the Working Capital and Performance Benchmarking report, click here.

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