Late payments to creditors by UK PLC’s are being used to add to the working capital companies have at their disposal, according to a new report from Deloitte.
The professional services provider has analysed the working capital performance of 20,800 companies with global operations over the past five years, enabling it to compile a £64 billion estimate of excess working capital in the UK - a rise of £3 billion since 2010.
Much of this capital is achieved through delayed payments, which led to the average late payment being made a week later in 2011 than in 2009.
Deloitte warns that this can have negative reputational effects for companies that delay payments to their suppliers, leading to poor supply chain relations in the future, and knock-on effects on cost and viability.
'18 months of national debt payments'
Andrew Harris, partner in Deloitte's advisory development group, puts the £64 billion figure into perspective by comparing it to the national debt.
If the money were put at the UK government's disposal, he says, interest payments on governmental debt could be made upfront for the next 18 months.
He adds that effective use of cash is likely to remain a priority for British businesses in the months to come, due to the current economic conditions.
But he also says: "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."
Deloitte claims that releasing this £64 billion of capital could help to restore economic growth in many businesses, as well as allowing them to deal with temporary downturns in the market.
For suppliers facing late payments as their clients hold out on their invoices for a week longer than was the case two years ago, it's a difficult situation - and the overall liquidity of the UK economy appears to be suffering as a result.
'Effective cash management is important'
Just as the economic turbulence is to blame for the focus on capital, Mr Harris argues that it also renews the importance of keeping a close eye on financial management for firms of all kinds.
"The nature of working capital is such that effective cash management is important during recessionary periods, to provide protection against market uncertainties, while in expansionary periods it can fund controlled growth," he explains.
Certain sectors are facing specific obstacles that must be overcome through effective cash management - for instance, retailers who are experiencing subdued sales in the present climate are looking to ways that they can bridge those gaps.
Pharmaceutical firms, meanwhile, are funding growth and industry consolidation using the benefits from working capital programmes.
If your organisation is in these industries' supply chains, or indeed in any other sector, the challenge is to ensure your credit control and debt recovery procedures are enforced in such a way that your own capital is not put at risk, while continuing to forge positive business relationships both during the recession, and for when the economy begins to recover.
If you would like to find out more about how we can help your business maximise its available capital whilst protecting the relationships on which good business depends, click here to Contact Us.
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