FIRMS could be missing out on a ‘cash mountain’ that could help them to expand, according to Lloyds Bank Commercial Banking after new figures found they were tying up millions of pounds in excess working capital.
The research shows that businesses across the south and the east of England have at least £138.3bn tied up in excess capital, as business growth continues to soar.
But by building up their stock levels ahead of anticipated price hikes – causing the level of cash trapped in working capital to increase – south east firms could be leaving themselves exposed.
The Lloyds Bank Working Capital Index is a new six-monthly index that uses the Lloyds Bank Regional Purchasing Managers’ Index (PMI) data to calculate the pressure businesses are under to either increase or decrease working capital.
A reading of more than 100 indicates pressure to devote more cash to working capital while a reading of less than 100 indicates pressure to prioritise liquidity.
The current reading of 107.1 indicates that south east firms are putting more cash into their working capital, even though economic indicators warn of possible storms to come.
Nathanael Bonser-Ward, global transaction banking at Lloyds Bank, said: ‘This could be a good sign. Businesses can afford to stock up and tie up increasing levels of cash in working capital when they are performing well and focused on growing their business. But, having those funds locked away at times of uncertainty, or if the economy falters, could spell danger.’