22 December 2009 | Paul Snell
Companies should consider offering bonuses to employees who think up effective ways to manage cash flow.
This was among the recommendations from consultancy Booz & Company, whose study conducted among 202 UK businesses found firms are sitting on £110 billion of working capital – which includes stock, money owed to the organisation and money the organisation owes. This equates to 10 per cent of the revenue of companies in the FTSE-100.
Booz said freeing up some of this cash – for example, by buying and holding less stock and chasing unpaid bills – could free up money that could be invested in research and development and improve innovation, which would boost competitiveness.
“When capital is scarce, making better use of working capital is not merely a matter of improved practice. Companies risk their competitiveness, in fact their own survival, by neglecting the cash available at home,” said John Potter, partner at Booz.
The consultancy also recommended that cash tied up in the business could be used to fund supply chain improvements. For example, money locked in surplus stock could be used instead to build local production facilities.
Booz advised firms to look at their overall business models. It said those firms with the best working capital performance often had radically different models of business.
“Pushing the working capital agenda can catalyse change across a company,” added Lee Talbert, principal at Booz. “It’s a great way to wake up a sleepy organisation.”