Analysis by Lloyds Bank Commercial Banking reveals businesses in the North of England have around £116.4bn tied up in working capital – equivalent of 8.9% of their total revenue. Tony McDonough reports
Firms across the North West are leaving themselves vulnerable to unforeseen shocks by tying up too much revenue in working capital.
A new study by Lloyds Bank Commercial Banking reveals businesses in the North of England have around £116.4bn tied up in working capital – equivalent of 8.9% of their total revenue.
Working capital is the amount of money that a company ties up in the day-to-day costs of doing business, and tends to increase as businesses grow or as efficiency falls.
The fact that the amount of money tied up in things like inventory or unpaid invoices almost doubled (up by 95%) in the past year could be a positive sign for the North’s economy.
But tying up too much money in day-to-day costs puts pressure on cash flow and experts fear that the fact that working capital now accounts for such a large proportion of North firms’ revenue could leave many firms ill-prepared to respond to change.
Lloyds’ surgery of more than 5,000 UK businesses showed the amount of money tied up in working capital by firms across the UK has soared by 37% in the past 12 months to £680bn.
This was caused partly by the fact businesses were growing, but also by the fact firms – and particularly smaller ones – were becoming less efficient at collecting cash from customers.
Richard Evans area director for global transaction banking in the North West, said: “Revenue growth is good news for any business, but to improve efficiency is going to take investment and that requires cash flow.
“Small firms in particular are taking even longer to free up cash from things such as inventory and unpaid invoices. The longer that money remains unavailable, the less firms can invest in growth, new machinery or pay down debts.”