Working Capital: Opportunities Knock

Working Capital: How companies can tap the cheapest source of cash Robert Smid, Andrew Sentance and Niall Cooter discuss how more restricted access to finance is adding to the pressure on businesses to seek cheaper sources of cash

How companies can tap the cheapest source of cash in the ‘new normal’

The ‘new normal’ of slow growth and more restricted access to finance appears to be adding to the pressure on businesses to seek cheaper sources of cash and to tighten up on working capital.

Our latest global working capital annual review shows that working capital levels have deteriorated (increased) year on year by almost 2% globally, a trend that is reflected across all industry sectors.

Over the past year we have seen an improvement in working capital in countries with the weakest GDP performance. Some businesses tried to ride out the storm, relying on the good will of suppliers and lenders, whilst others have taken the opportunity to take decisive action to reduce working capital. Those businesses that have taken short term measures to shore up their balance sheets must now explore ways of implementing sustainable changes to business practices that will make them leaner and fitter to weather this ongoing period of uncertainty.

If all companies achieved close to the best performance in their sector, a staggering €3.7 trillion of excess working capital could be released worldwide, averaging out at 10-12% of company turnover. These are part of the findings in PwC’s latest working capital study which analyses the accounts of 15,763 publicly listed companies across the world.

While the pursuit of growth remains vital for companies, working capital and cash flow management has become a primary focus. This reflects the difficult economic environment putting companies under pressure to manage their liquidity as effectively as possible.