Working capital vacuum threat as recovery continues

By Azets

17 Sep 2021

A severe shortage of working capital is set to cause a growing number of business failures as companies responding to the recovery become overstretched and insolvent due to a lack of cash, a leading restructuring expert is warning.

Working capital is the liquidity available to a business that is not tied up in its daily operations and is a key indicator of the health of a business.   

Nicola Clark, a restructuring partner with SME specialist Azets in the North West is warning that the economy is reaching the point where a shortage of working capital becomes increasingly common.

She said: “When a recovery is underway and demand from businesses and consumers increases many companies will face a working capital crisis.  Entrepreneurs naturally want to pursue opportunities but if cash coming into the business is out of sync with cash leaving the business the company will be unable to meet its obligations, and quickly face an insolvent position, commonly-known as overtrading.

Nicola added: “Most working capital problems arise when there is a gap between a sale and the collection of the cash.  During that time overheads continue, staff and taxes need paid, and cash problems escalate. If supplier credit terms are tightened but sales increase, the working capital requirement becomes greater and a business with rising demand can quickly face a cash flow crisis and insolvency.  Our economy is moving towards the point where working capital problems will become far more prolific.”

Nicola Clark is urging directors and business owners in the region to take early intervention rather than hope to trade through a working capital problem, a common response which will often escalate the cash flow crisis. 

She notes some steps that businesses can take to optimise their financial position.

Financial Data – Decisions should be based on real-time and accurate financial information with investment in quality software, systems, and staff.

Visibility – A 13-week rolling cash flow forecast tracking all receipts, payments, and pending costs is a pre-requisite otherwise the business is financially blind.

Proactive invoicing and collections – A forensic review of all processes that turn orders into cash will identify inefficiencies in cash retention and cash flow.

Review Inventory Strategy – Match stock to orders and adopt a ‘Just in time’ stockholding policy.

Stakeholder Relations – A communications plan should be prepared for each group affected by cash flow problems, from customers and investors to staff and suppliers.

Nicola concluded: “Economic recovery is understandably hailed as a welcome respite from economic problems, but it always brings financial challenges for businesses, most notably working capital and cash flow crises”.

“In spite of the funding and equity options which may be available to businesses, cash as always remains king. Cash is essential to repay debt and finance growth, but a shortage can cause failure and is often a problem that can be prevented with early intervention.”

Latest news

1

Three weekly domestic waste collection considered in plans Waste recycling Blackpool

Three weekly domestic waste collection considered in plans

01 Jul 2025

2

Graham Engineering confirms acquisition to a2e Industries Graham Engineering

Graham Engineering confirms acquisition to a2e Industries

01 Jul 2025

3

Training 2000 celebrate 'Good' rating by Ofsted Training 2000

Training 2000 celebrate 'Good' rating by Ofsted

01 Jul 2025

4

Fox Group acquires J Fisher and Sons Colin Fisher, Paul Fox CEO and Gary Fisher.

Fox Group acquires J Fisher and Sons

01 Jul 2025

5

Beever and Struthers strengthen leadership team with new partners Dean Curtis and Joe Diston

Beever and Struthers strengthen leadership team with new partners

01 Jul 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV123 July/August Launch Event
Lancashire Business View magazine launch
Networking
16 Jul 2025

LBV123 July/August Launch Event

Burnley

08:30 - 10:30

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Chamber Breakfast Networking – July
Chamber Logo1.png.png
LBV Hub Networking
02 Jul 2025 - 02 Jul 2025

Chamber Breakfast Networking – July

St John's Hospice, Slyne Road, Lancaster, LA2 6ST

08:00 - 10:00

The Marketing Metrics that Matter – July 4
LBV Hub Seminars
04 Jul 2025 - 04 Jul 2025

The Marketing Metrics that Matter – July 4

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

08:30 - 11:00

Tri-Site Survey Equipment Showcase
unnamed (2).jpg.jpg
LBV Hub Seminars
09 Jul 2025 - 09 Jul 2025

Tri-Site Survey Equipment Showcase

Crow Wood Hotel, Burnley, BB12 0RT

09:30 - 16:00

Chamber Summer BBQ
LBV Hub Social
17 Jul 2025 - 17 Jul 2025

Chamber Summer BBQ

The Borough, Dalton Square, Lancaster, LA1 1PP

17:30 - 20:00

Preston Tech Connection: Web3 is Dead. Or is It?
July Longer Banner.jpg.jpg
LBV Hub Networking
29 Jul 2025 - 29 Jul 2025

Preston Tech Connection: Web3 is Dead. Or is It?

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:30

Preston Freelancer Meet-Up: July
Longer July Banner.jpg.jpg
LBV Hub Networking
31 Jul 2025 - 31 Jul 2025

Preston Freelancer Meet-Up: July

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

North West Business Expo 2025
https---cdn.evbuc.com-images-880456273-4862066883-1-original.20241022-105445.jpeg.jpg
LBV Hub Exhibitions
24 Oct 2025 - 24 Oct 2025

North West Business Expo 2025

Bolton Stadium Hotel, Bolton, BL6 6SF

09:00 - 15:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin