Last year’s working capital report from Grant Thornton ‘The UK’s Cash Conundrum’ showed that companies who were able to release cash from working capital on a sustainable basis achieved dramatically higher levels of growth in profitability versus peers who were not delivering consistent improvements. This year they found in their UK Working Capital Study of 3,081 companies that size nor sector are a barrier to driving transformational cash release from working capital and that a net £8.8 billion of cash can be released to the balance sheets of companies. There is evidence at all levels of the economy of what can be achieved with the right focus and approach.

Findings

Some of the key findings were:

• £136 billion in cash tied up in working capital on the balance sheets of UK corporates
• Cash on hand decreased for the first time in five years across UK companies to £254 billion
• Five times higher EBIT margin performance for companies that have achieved three years of consecutive improvements in working capital
• Large corporates are under-performing their small and medium-sized peers in year-on-year working capital and profitability trends
• Only:
  • 11% have managed to achieve improvements in working capital for three years consecutively
  • 9% have increased in year-to-year balance sheet debt accumulated; a five-year high of £1.16 trillion
  • 3% improved their cash-to-cash cycle (‘C2C’) year-on-year
  • 8% experienced a decline in profitability year-on-year, based on EBIT margin.

Optimising working capital

Grant Thornton’s working capital advisors recommend these five key steps to optimise your working capital:

1. Make working capital a strategic priority, with the right level of focus and support from senior management
2. Understand what good looks like for your organisation, with consideration of your sector, size and use of relevant benchmarks
3. Embed simple processes and controls such as standard payment terms and exception processes, and proactive collection procedures to provide improvements in working capital, or at the very least, protection from deterioration
4. Develop and embed operational level metrics and KPIs that allow regular tracking of working capital performance, that can be understood by those in the business who have the ability to influence performance day-to-day
5. Push the boundaries of best practice, using enablers such as supply chain finance and automated, data focused solutions that support inventory management.

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