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Firm hold back £64 billion of working capital, survey reveals


The report entitled, ‘Working Capital: The £64 billion question found that the cash, if released, could be used to help fund business growth or overcome temporary market downturns.
The report identified that this excess capital – the amount of money a company requires to run its day-to-day operations – is up from £61 billion in 2010 and £59 billion in 2009.
One of the most significant findings was that UK companies are delaying payments to suppliers in order to help fund their working capital.  On average, suppliers were being paid a week later in 2011 than two years earlier.
While this may lead to short term working capital improvements it may also lead to future issues with supplier relations, costs and viability, the report says.
Results from Deloitte’s Q1 2012 survey of chief finance officers highlighted that increasing cashflow and reducing costs were key priorities. Most of those surveyed said that they aim to run higher cash balances than before the financial crisis.  Because of this, the amount of excess working capital in UK plcs is still rising.
Nigel Mercer, office senior partner at Deloitte in Milton Keynes and St Albans, said: “As the UK economy has technically entered a recession, cash and its effective use will continue to remain high on the corporate agenda.
“To put the £64 billion figure into context, this is more than enough to pay the UK government’s debt interest payments for the next 18 months. The paradox is that, with the appropriate focus, working capital can be one of the cheapest and most accessible forms of funding available to a business.”
Effective cash management is important during recessionary periods to provide protection against market uncertainties, Mr Mercer added, while in expansionary periods it can fund controlled growth.
In retail, working capital initiatives are being driven by the need to bridge gaps caused by downturns in revenue. Pharmaceutical companies are using the benefits from working capital programmes to fund industry consolidation and future growth.
Mr Mercer said: “While external factors are often cited as the prime drivers of working capital performance in these sectors, an all-encompassing focus on revenue and profit margin is often the key driver. It is our experience that a significant amount of working capital can be released without adversely impacting the underlying business.”