Late payments remain a persistent issue globally nearly a decade past the 2008 crisis, but the long-term outlook is optimistic. A 3% improvement in the cash-to-cash cycle of UK companies has released £8.8bn previously tied up in working capital, according to Grant Thornton’s latest UK Working Capital Survey.
Individual businesses, not just the economy benefit by optimizing working capital strategy, the research says. Better working capital performance positively impacts a bottom line; the 10 percent of companies who improved working capital three years in a row have five times better EBITA performance than the rest of the sample in terms of profitability. The survey result noted that 2016 was the first time in five years that UK corporate cash balances decreased overall.
Mark O’Sullivan, Partner, Head of Finance and Working Capital Advisory at Grant Thornton said “Since the financial crisis, UK companies have placed an increased focus on the health of the balance sheet. We see companies of all shapes and sizes evaluating and honing their processes to drive out cash tied-up in working capital.”
“From a strategic perspective, it allows businesses to drive more efficient profitability. This directly correlates to the market capitalisation of the businesses and is, therefore, a critical measure for shareholders.”
“Working capital is more than just a financial topic. “t is an operational topic and once you start improving processes across the operation it indirectly improves efficiency throughout the business and thus reduces costs.”
Freed up working capital is also helping businesses fund their investments. This was especially critical in 2016 as the Grant Thornton survey found that UK companies were investing more than in the past.
O’Sullivan continues “Last year was the first year in the past half-decade that corporate cash balances decreased – this is despite the extra cash unlocked in working capital. Working capital is clearly the cheapest way to fund this investment and is a reason many organisations are focusing on this space.”