Scots firms see increase in money held up in working capital

The amount of money in things like inventory or unpaid invoices increased by 2% in the past year, which researchers say could be a positive sign for the Scottish economy.

But fears have been raised because it now accounts for 11.4% of firms' revenues and could leave many ill-prepared to respond to change.

The money, which a company ties up in the day-to-day costs of doing business, can put pressure on cash flow if the amount increases too much.

Simon Quin, area director for Global Transaction Banking at the Bank of Scotland, said: "Revenue growth is good news for any business, but to improve efficiency is going to take investment and that requires cash flow.

"Small firms in particular are taking even longer to free up cash from things like inventory and unpaid invoices.

"The longer that money remains unavailable, the less firms can invest in growth, new machinery or pay down debts.

"Companies that manage their working capital well can generate healthy cash flow and will be best placed to invest in their businesses and take advantage of new trading opportunities

"Those who don't may find it difficult to deal with a potential rise in interest rates later this year, or to take on the opportunities and challenges created by Brexit."

Across the UK, the amount of money tied up in working capital surged by 37% in the past 12 months to £680 billion.

Researchers say this was caused partly by business growth, but also by the fact firms - particularly smaller ones - were becoming less efficient at collecting cash from customers.

The Bank of Scotland report also found revenue growth nearly quadrupled in the UK during 2017, to 8.3%, from 2.1% in 2016.