Global research by PwC has identified a €1.1 trillion opportunity to release cash for business, by addressing working capital performance, and predicts that Brexit uncertainties will drive UK firms to tighten up by holding minimal inventory and demanding prompt payment
PwC reviewed the global working capital performance of more than 13,000 businesses over a 10 year period ending at 2015 year-end financial statements. Analysis revealed a working capital opportunity of £28bn for 450 UK businesses collectively.
Daniel Windaus, working capital partner at PwC and lead author of the report, said: ‘Working capital is integral to a company’s operation and can provide a real competitive advantage by creating value as it improves free cash flow. Companies with poor working capital performance require more funding to grow, so it is in management’s interest to manage performance closely.
‘Companies are in a period of uncertainty following the UK vote to leave the EU. Many lessons can be learned from the gains companies made in working capital management in the years following the 2008 financial crisis. Cash trapped in working capital has risen in the years since, indicating that companies should revisit the improvements they made then to release more of this cheap cash source.’
The report found that the UK’s working capital performance has improved for two years running, with the existing working capital within businesses reducing in 2015 by £14bn, compared to 2014 when it stood at £124bn.
The UK’s performance outpaced those of global counterparts with less time spent on waiting for invoices to be paid and paying bills 16% lower than the global average in 2015 (UK 36.6 days, global 43.4 days).
According to PwC’s analysis, companies in the EU require more working capital to fund their operations than UK counterparts. This is revealed by a gap of nearly six working capital days (net time spent on waiting for invoices to be paid, inventory holding period and days to pay supplier bills), between the ten year working capital average days in Europe excluding the UK, and the UK (43.7 and 38 days respectively).
The firm says this gap is partly due to the higher number of engineering, construction and industrial manufacturing companies in the EU, which have high working capital requirements. The UK’s large retailers which generate a higher proportion of retail revenues than the EU help reduce the country’s total working capital requirements.
