• Covid-19
  • DPO
  • Purchases

Consumer goods companies slashed purchases, extended payables as pandemic disrupted customers


DPOs hit record highs for a slew of food and consumer goods multinationals in Q1 2020 as treasurers pulled levers to extend working capital.

by Manpreet Singh

Published: 23 June 2020

The Covid-19 global pandemic has rattled the businesses around the globe. Businesses are facing an impact on multiple fronts from temporary shutdowns to supply chain pressure to cash crunch. In a recent survey conducted by EuroFinance, over 60% of respondents told they were facing increased pressure on working capital and a little over 25% of them said the Covid-19 pandemic has disrupted the supply chain.

The first response of any company in this situation was to stretch the payments cycle and work on fixing working capital in awake of the cash crunch. The food and consumer goods companies’ Days Payable Outstanding (DPO) in Q1 2020 has increased significantly from the previous year. Drinks giant Coca-Cola’s DPO increased from 78 days in 2019 to 101 days and its competitor PepsiCo also saw an increase from 90 days to 107 days, which is a record high for the company.

The causes of the increases vary because of the way that DPO is calculated, being proportional to the ratio of Accounts Payable to Purchases. So for Coca-Cola, a sharp increase in AP, to $4.1 billion, drove the DPO increase in the first quarter, according to SEC filings. However, AP was static at Pepsi, while Cost of Goods Sold – a contributor to purchases – plunged as customers were unable to buy its products at stores and restaurants. This decrease in the denominator of the ratio pushed up DPO.

Days payable outstanding

The cumulative amount of accounts payable for these companies fell by nearly $3 billion from 2019 to the end of Q1 2020. In this time period, inventory levels remained the same while accounts receivable saw a marginal rise of $1 billion.

WC Position

The main focus of these food and household companies was to overcome the challenges related to supply chain management. Whirlpool, for instance, continued with production even during the lockdown period but according to the company, it approached a “slow and steady” pace rather than “stop and go” approach. This helped the company to keep its pace with demand.

Meanwhile Colgate-Palmolive said it was able to switch suppliers between Europe and Asia, so that when the pandemic hit one part of the globe, the other part would compensate for the loss in production and supply those levels. This helped the company to keep the pace with demand and have a desired inventory levels. “There’s a lot of flexibility in our supply chain”, CEO Noel Wallace said on an earnings call.

While the companies analysed by EuroFinance are all US-based and file quarterly accounts, European consumer goods companies that don’t file quarterly warned that the pandemic would affect their mid-year accounts. For example, brewing giant AB InBev warned that bans on beer sales and bar closures around the world had reduced sales volume by 30%, and this would likely increase DPO. As previously reported by EuroFinance, AB InBev has the highest DPO of all large food & beverage multinationals, at 360 days.

With pandemic and to keep pace with demand and also ensuring a steady supply of goods while facing the disruption in supply chain and production halts, these companies saw a substantial increase in debt. In Q1 2020, the debt level increased by $23 billion to $212 billion at the end of Q1 2020.

Accounts payable and debt

Among these companies, Procter and Gamble, PepsiCo and General Mills have a negative cash conversion cycle. The average DPO increased from 85 days to 92 days in Q1 2020.