SCOTTISH businesses are storing up potential difficulties by having too much tied up in excess working capital, a new survey has signalled.
While Scottish firms have started reducing working capital, contrasting a sharp rise seen among businesses across Britain as a whole, they still have at least £31.5 billion tied up in working capital.
And that means they could find themselves exposed if they are left holding too much stock if economic conditions worsen.
The claim is made by Bank of Scotland on the basis of its new six-monthly Working Capital Index.
It uses the bank’s Regional Purchasing Managers’ Index (PMI) to calculate the pressure businesses are under to increase or decrease working capital. A reading of more than 100 indicates pressure to devote more cash to working capital, while a sub-100 reading signals pressure to prioritise liquidity, under the index.
The reading for Scotland was measured at 99.5, down from a high of 104.8 in October.
The bank said the score suggests prudent Scottish firms have started to reduce their working capital to increase the amount of cash available in their business.
However they have the opportunity to release a further £31.5n, the bank said.
Colin Walls, managing director of global transaction banking at Bank of Scotland, said: “Working capital is the lifeblood of any business, and our research shows that Scottish businesses have huge amounts of money tied up in it.
“This cash mountain 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 focussed on growing their business.
“But having those funds locked away at times of uncertainty, or if the economy falters, could spell danger.”
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here