From Cart to Cash:Amazon vs Walmart AR Showdown
While Walmart has an impressive DSO, Amazon stands out with its ability to keep the cash conversion cycle negative. Here is a comparative analysis of the receivables management techniques employed by these two retail giants.
Linkedin
Facebook
Twitter
Copy url5X
faster cash collection by Walmart
3X
longer CCC for Amazon vs Walmart
30%
higher DIO for Walmart vs Amazon
6X
more cash for Amazon vs Walmart
With a whopping $500+ billion in annual sales, Amazon and Walmart move mountains of merchandise yearly.
But that also means plenty of invoices to collect!
Get ready for a financial face-off of epic proportions as Walmart and Amazon go head-on in the battle of cash conversion. Will lightning-quick delivery give Amazon the edge or can Walmart's brick-and-mortar prowess drive faster cash flows?
Let’s unravel the O2C secrets of Walmart vs Amazon and find out who has a better grip on accounts receivable (AR) and working capital.
Walmart collects 5X faster than Amazon
Receivables turnover ratio (ART) is your go-to metric if you want to find out which business is getting paid faster.
Receivables turnover ratio = Net credit sales/average receivables
Walmart’s average ART was 88 against Amazon’s 18. This essentially means that Walmart collects almost 5X faster than Amazon.
While this is not an apple-to-apple comparison, it is a reflection of the differences in the way both the giants do business. Amazon is predominantly an online retail channel (more than 50% of its sales come from its e-platform) while Walmart’s majority of sales come from physical stores (84%).
Within their respective industries, the ART ratios of both Amazon and Walmart are significantly higher than the industry averages, 13 for the online shopping industry and 22 for the retail industry, indicating their dominant positions.
Walmart’s DSO is among the lowest in the retail industry
DSO is the magic number that reveals how fast a company can turn sales into hard cash. It measures the number of days it takes for a company to collect payments from customers.
Walmart’s average Days Sales Outstanding (DSO) for the last five years was 4 days compared to 21 days for Amazon. Interestingly, Walmart’s and Amazon’s DSOs are lower than their industry average of 4.5 days for physical retail and 35 days for online retail, respectively.
Amazon does a significantly better job at collecting receivables compared to peers in the online shopping industry, considering the larger difference between its DSO value and the industry average,
Why is Walmart’s DSO lower?
Here’s a look at why Walmart has a lower DSO than Amazon. This also tells why physical retail businesses tend to collect AR faster compared to their online counterparts.
- Payment Methods: Physical retail outlets collect payments at the point of sale. 59% of Americans pay in cash for at least some part of their weekly purchases. This enables retail stores to apply cash faster, while online shopping platforms have to wait till delivery or bank clearance to realize cash.
- Prepaid Debit Program: Walmart’s partnership with Green Dot and its MoneyCard prepaid debit program serves as an affordable checking account alternative for many of Walmart’s underbanked customers. The program effectively speeds the realization of payments from a large customer segment, contributing to Walmart’s lower DSO.
Amazon’s negative cash cycle helps it finance its operations at a lower cost
Turning cash invested in inventory into more cash is a routine business affair, referred to as the Cash Conversion Cycle (CCC).
It is influenced by how long you keep inventory (DIO), take to pay suppliers (DPO), and receive cash from customers (DSO).
CCC = DSO + DIO – DPO
DIO: Days Inventory Outstanding is the average number of days a company holds inventory before selling it.
DPO: Days Payable Outstanding is the average number of days it takes for a company to pay its suppliers.
Despite having a higher DSO than Walmart, Amazon sports a negative CCC. Over the last five years, it has averaged -13 days.
In comparison, Walmart’s average CCC was 4.5 days.
Let’s dive into the constituent metrics to see how Amazon and Walmart compare.
-
Walmart’s DIO is 30% higher than Amazon’s
Days Inventory Outstanding (DIO) is an indicator of inventory management success.
For Amazon, DIO averaged 30 days in the last five financial years* while for Walmart it was about 41 days.
Amazon does not hold large quantities of the inventory by itself. Instead, most products are shipped directly from third-party sellers, about 82% of its total sales.
Walmart, on the other hand, holds 1.6X times more inventory than Amazon. This increases its DIO. Also, Amazon’s fulfilment centres at multiple locations help it process orders faster while reducing the inventory holding time.
-
Amazon has significant influence over its sellers and suppliers
A behemoth is not always benevolent. And Amazon fits this image.
Amazon’s dominance in online retail and its faster inventory turnover (in comparison to Walmart inventory turnover rate) enables it to pay suppliers much later after collecting from customers. Amazon’s average DPO in the last five years is 62 days against Walmart’s 42 days.
Amazon increased its DPO from 54 days in 2018 to 68 days in 2022, while for Walmart the DPO reduced from 46 days to 42 days during the same period.
This enables Amazon to hold cash in hand for longer, and hence essentially be financed by suppliers!
A closer look at Amazon’s accounts payables
Here’s a look at how Amazon manages its accounts payables.
- Delayed supplier payments: Suppliers and sellers have often, and for a long, complained about delayed payments from Amazon. Its accounts payables increased by 53% during the pandemic (2020). Amazon’s market dominance enables it to get away with delayed supplier/seller payments.
- Lower accounts payable turnover ratio: Amazon’s accounts payable turnover ratio (an indicator of how quickly a company makes payments to its suppliers) averaged 4.8, almost 35% lower than the industry average of 6.5. Walmart on the other hand, pays suppliers almost twice as quickly as Amazon. Its payable turnover ratio was 8.4.
Working capital and cash assets: Amazon versus Walmart
Walmart has historically maintained a negative working capital (current assets minus current liabilities), averaging $(14.08) billion in the last five years.
Amazon, on the other hand, has maintained a current ratio (current assets/current liabilities) of 1.1 between 2018 – 2021. In 2022, it reported a negative working capital, $(8.6) billion, indicative of its lengthening cash cycle driven by increasing accounts payable and accrued expenses.
Amazon also boasts of almost 6X the cash and cash equivalents held by Walmart. Its operating cash flow for the latest financial year was 2.3X that of Walmart.
Amazon and Walmart are head-to-head in the battle for retail supremacy
It’s difficult to predict who’ll win the battle between Amazon and Walmart. Amazon has rapidly grown in the last 5 years, doubling its revenue. During the same period, Walmart’s revenues grew only 20%.
But Walmart still leads Amazon in terms of overall revenue, $611 billion vs $514 billion (Amazon’s revenue excluding AWS is only $434 billion).
Amazon has expanded its physical presence with the acquisition of Whole Foods Market and the opening of Amazon Books and Amazon Fresh stores. Walmart, on the other hand, is actively foraying into the e-commerce space, powered by the acquisition of Jet.com and Flipkart in India.
The two retail titans continue to fight it out, in the stores and on online channels, to prove their dominance, both on the balance sheet and in terms of market share and customer order value.
*Note: Amazon’s financial year ending is December 31. For Walmart, the financial year ending is January 31 .
