News
23 May 2012

Late payment funds excess working capital

British companies are delaying paying their suppliers by up to a week to help fund their working capital, according to new research from Deloitte

Yet the survey alse revealed that companies are sitting on £64bn of excess working capital, enough, if released, to help fund business growth or overcome temporary market downturns.

The trend towards late payment reflects the findings of Deloitte’s Q1 2012 survey of chief financial officers, which revealed that their key priorities were increasing cash flow and reducing costs.

The majority said that they aimed to run higher cash balances than before the financial crisis. As a result, excess working capital has risen from £59bn in 2009 to £61bn in 2010 to £64bn today.

“As the UK economy has technically entered a recession, cash and its effective use will continue to remain high on the corporate agenda,” said Andrew Harris, partner in Deloitte’s advisory development group.

“To put the £64bn figure into context, this is more than enough to pay the UK government’s debt interest payments for the next 18 months. 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.”

He added that companies could release a significant amount of working capital without adversely impacting the underlying business.

The report suggests that extending the length of time companies take to pay suppliers does not make good business sense. Although delaying payments is an easy, short-term action to improve the company’s capital situation, it may create future problems with supplier relations, costs and viability.

It also runs contrary to actions in businesses in other countries where the focus has been on improvement of sustainable receivables.
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