In brief: A subsidiary reporting a higher cash balance has reported a movement, not yet a result. Measuring working capital improvement at group level separates cash that entered the group from cash that only moved inside it. Financing drawdowns and shifted payment dates sit in that second category. Until someone makes that separation, headquarters cannot say whether the programme released cash or redistributed it. The question is one of measurement, not blame.

Define the result before measuring working capital improvement

A group headquartered in France or Switzerland runs a cash programme across operating entities in Poland, Czechia, Romania and Slovakia. Three of the four report an improved cash position within the quarter. Each local team reads its own accounts correctly. The consolidated position, a month later, shows a smaller gain than the sum of the local ones. Nobody misreported anything: the two levels measured different things.

The pressure is not easing. The Hackett Group’s 2025 European Working Capital Survey covers the 1,000 largest European-headquartered non-financial companies. The firm published it on 10 November 2025. The survey recorded a cash conversion cycle of 44.8 days, up 3 per cent and deteriorating for a third consecutive year. It put excess working capital at 1.4 trillion euro, or 14 per cent of aggregate revenue.

Groups are right to act on figures that size. Measuring working capital improvement starts with an agreement that has little to do with accounting mechanics. Headquarters and the entities settle four things: which entities count, which period applies, the starting position on a stated date, and the type of improvement claimed. Without that, each entity picks the definition that suits its own position.

Entities, period and starting position

A group may measure five operating companies but settle intercompany balances through a sixth. Cash then appears and disappears with no visible cause. The period matters as much. A quarter ending on a large customer receipt shows an improvement the next quarter gives back. A month-end balance, struck when payment runs cluster, does not compare with a mid-month one.

A projected benefit is not a confirmed movement

A renegotiated payment term creates a projected benefit the day both sides sign it. It becomes a confirmed movement only when the first invoice under the new term settles. Both belong in a management report, though not in the same column. Forecasting answers a different question. A thirteen-week cash forecast shows when cash will arrive, while measuring working capital improvement shows whether the business created any.

Reconcile the movements: what a subsidiary cash reconciliation separates

A subsidiary cash reconciliation built for group use sorts every movement into categories that behave differently once consolidated. There are usually five. That sorting makes one result comparable with another.

• Customer receipts, where an external party has paid the group
• Operating outflows, where the group has paid an external party
• Internal transfers, where one group entity has paid another
• Financing movements, where a provider has advanced funds against an asset or an obligation
• Non-cash changes, where a balance has moved without a payment

Customer receipts, operating outflows and internal transfers

Only the first two categories change the group’s external position. IFRS 10 Consolidated Financial Statements treats the parent and its subsidiaries as a single economic entity. A payment between them is both a receipt and an outflow inside that boundary, and it nets to nothing. A local team crediting a treasury sweep to its programme reads its own position accurately and the group’s incorrectly. That is a definitional problem, not a reporting failure.

Financing and the classification that follows it

Financing is where the measurement most often goes wrong. The cash is genuine and external, yet it is not an operating cash improvement. FCI, publishing on 5 May 2026, put global factoring turnover for 2025 at 4,039 billion euro. Europe accounted for approximately 2,658 billion euro, or 65.8 per cent of the total. A market that size moves reported balances on its own.

Classification then follows the facts of the transaction. Whether a transferred receivable leaves the balance sheet is a derecognition judgement under IFRS 9 Financial Instruments. IAS 7 Statement of Cash Flows governs how the group presents what remains.

Supplier finance and the guidance that moved in 2026

The supplier side raises the same question with less settled guidance. The IASB issued amendments to IAS 7 and IFRS 7 Financial Instruments: Disclosures on 25 May 2023. They took effect for reporting periods beginning on or after 1 January 2024. Companies must disclose the arrangements’ key terms, the related liabilities and the liquidity risk. They must also state how much finance providers have already paid suppliers.

The International Accounting Standards Board met on 21 and 22 July 2026. Eleven of its twelve members agreed to withdraw the reverse factoring agenda decision of the IFRS Interpretations Committee. Those disclosure requirements still stand. Classification returns to judgement just as IFRS 18 Presentation and Disclosure in Financial Statements takes effect from 1 January 2027.

Regulators have already documented the direction in which classification drifts. The Financial Reporting Council published a thematic briefing on the audit of cash flow statements in May 2021. It counted cash flow cases rising from 9 per cent of Constructive Engagement cases resolved in 2019-20, three cases, to 17 per cent in 2020-21, a further eight. Most errors involved misclassification between operating, investing and financing. The briefing found that “the majority overstated operating cash flows.”

Avoid double counting when assessing group cash impact

Double counting is rarely deliberate. The receipt and the cost sit in different ledgers, usually in different countries, and nobody owns both halves. Intrum’s European Payment Report 2026 surveyed 8,385 businesses in 20 European countries. It appeared on 21 April 2026 and found that 62 per cent of businesses pay their own suppliers late because customers paid them late. Inside a group, that chain runs between sister companies.

Fees, discounts and effects elsewhere in the group

One entity’s improvement becomes another’s extended payable, and the group cash impact is the difference. Every accelerated receipt also has a price. Factoring carries a fee and early settlement carries a discount. Suppliers often recover an extended term through price at the next negotiation. Those costs belong against the receipt that produced them.

The fee may sit at treasury in Austria or Germany, the receipt at a plant in Czechia or Romania. Someone has to bring the two together. A programme measured gross at the entity and net nowhere overstates itself.

Avoided future spending is not cash received

A cancelled purchase order, a deferred maintenance programme and a reduced inventory target all carry value. None of them is a receipt. They belong in a separate column with their own owner, period and evidence. Keeping them apart protects the cash column, the one a lender or an investment committee will test.

Test durability: whether an operating cash improvement survives the year

The durability test asks one question of each movement. Did someone correct the underlying cause, or did an obligation simply move in time? A customer who now pays within terms, because the plant resolved a disputed delivery condition, is a corrected cause. A supplier paid thirty days later than agreed carries an obligation that has moved, and it will move back.

Where the headline improvement usually comes from

The difference shows in the aggregate data. The Hackett Group oggetto di indagine the 1,000 largest North American non-financial companies on FY2025 results and published the findings on 5 October 2026. The opportunity rose 12 per cent to a record 1.94 trillion dollars. The cash conversion cycle improved by only 0.2 days, to 38.4 days. Days sales outstanding deteriorated by 2.1 days, while days payable outstanding improved by 2.9 days. The headline movement came from paying suppliers later, which is not an operating cash improvement.

In Europe, the EU Late Payment Directive 2011/7/EU bounds that route. The European Commission tracks its effects through the EU Payment Observatory. The proposed Late Payment Regulation COM(2023)360 has not replaced it.

Cash the group cannot reach

Durability also covers whether the group can use the cash. The European Securities and Markets Authority published its European Common Enforcement Priorities for 2026 on 13 October 2026. Under reference ESMA32-2064178921-9738, it set geopolitical risks alongside restructuring provisions and debt restructuring as the two priorities. On IAS 7 it noted that cash held by issuers “may not be available for use by the consolidated group.” A balance the group cannot distribute, lend upward or net is real cash with a limited group cash impact. The board needs to know which it holds.

Close on evidence the board can use: a repeatable cash-release measurement

A single headline number is the weakest output a multi-entity programme can produce. Nobody can interrogate or reproduce it next quarter. A repeatable cash-release measurement looks like a group cash bridge. The group prepares it the same way each period, one line per movement, eight fields per line. The board reads the bridge, not a summary of it.

1. Entity: which legal entity the movement occurred in
2. Movement or action: what the entity actually did
3. External or internal: whether the counterparty sits outside the consolidated boundary
4. Realised or forecast: whether the cash has moved or is still to come
5. Related cost or effect: the fee, discount or consequence elsewhere in the group
6. Documentary evidence: the bank movement, agreement or approval behind the line
7. Owner: the person accountable for the action
8. Review: when the group next tests the line for durability

Who owns which part of the number

Several people share this work. The group controller establishes which movements eliminate on consolidation. The group treasurer confirms the source of the funds, and whether they can reach the entity carrying the debt. Accounting specialists hold the classification judgements that IAS 7 and IFRS 18 leave to them. The Group CFO owns the question none of them can answer alone: what the improvement cost, and what survives to the year end.

Where a controller and treasury team already produce that subsidiary cash reconciliation reliably, the group needs no further appointment. That changes when the programme is material, runs across several countries, and no single executive can set one definition and apply it in every entity. Groups then appoint an interim CFO or finance director with group controller and treasury support. CE Interim, part of the Valtus Alliance, leads that work across Central and Eastern European operations. The mandate is execution and verification, not a table.

Once the bridge exists, the question in front of the board changes. It is no longer whether the subsidiary improved. It is whether the group cash impact is large enough, external enough and durable enough. That answer decides whether the group funds the operation as it stands, restructures it, sells it, or closes it. The board cannot take that decision against a figure nobody can reconcile.