BRITISH FIRMS HAVE £500BN LOCKED UP IN EXCESS WORKING CAPITAL

  • CASH TIED UP SHOWS BUSINESSES UNDER HISTORIC PRESSURE
  • LATE PAYMENTS AND STOCKPILING AHEAD OF PRICE HIKES CAUSING A HUGE FINANCIAL BURDEN FOR FIRMS
  • BI-ANNUAL INDEX CALCULATES PRESSURE BUSINESSES ARE UNDER

This latest research, conducted by Lloyds Bank and IHS Markit, indicates that in the South East businesses have at least £138.3billion tied up in excess capital, as business growth continues to soar. Current readings indicate that South East firms are putting more cash into their working capital, even though economic indicators warn of possible storms to come.

Simon will discuss this new data (shown in full below) with Chris Williamson of IHS Markit and the author of this report, Director of Working Capitals at Lloyds Llewelyn Mullooly this Friday on Money Talk.

Further to this Simon will explore the options that companies have to get a decent return from their spare capital.

Tune in on Friday from 1pm on Channel Radio

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 British businesses have at least £498bn tied up in excess working capital, which could be used to boost cashflow and growth, according to new figures from Lloyds Bank Commercial Banking.

Cash is the lifeblood of any company. A combination of revenue growth, which increases the amount of money tied up in unpaid invoices, and firms strategically building up their inventories ahead of anticipated price hikes, have increased pressure on businesses to have more working capital, Lloyds Bank’s research found.

By tying up more funds in working capital processes, businesses are well positioned to invest in growth if there were to be an upsurge in the economy. However, many firms are likely to be left exposed if economic conditions deteriorate which would require them to free up cash quickly.

Working capital is the amount of money that a company ties up in the day-to-day costs of doing business. The more money tied up in working capital, the less available for investment, reducing debt or returning to shareholders.

The Lloyds Bank Working Capital Index is a new six-monthly report that uses the Lloyds Bank Regional Purchasing Managers’ Index (PMI) data to calculate the pressure British businesses are under to either increase or decrease working capital.

A reading of more than 100 indicates pressure to devote more cash to working capital, while a reading of less than 100 indicates pressure to prioritise liquidity.

The index, based on PMI data compiled by Markit, can be studied dating back to 2000. The current reading of 104.1 is only slightly down from a record high of 105.0 in October 2016. This indicates that firms need more funds to support their day-to-day operations.

The fact that pressure on working capital has hit record highs at the same time as other lead economic indicators, such as the exchange rate of the British pound, have deteriorated could mark a warning of possible storms to come.

Lloyds Bank also questioned 650 businesses about their outlook for the future:

  • Almost a quarter (24%) say changes to payment terms would be one of their main challenges in the coming 12 months, up from 20% in June 2016
  • More than one in five businesses (23%) report that the time it took to get paid had lengthened over the past year (up from 21% In June 2016)
  • Almost one in five (19%) say the sterling exchange rate was a challenge, a huge increase from just 2% in June 2016