SCOTTISH businesses have more than £32 billion tied up in excess working capital according to a new report – equivalent to 11% of their total revenues.

A study of more than 5000 businesses carried out by Bank of Scotland Commercial Banking said this puts pressure on cash flow and makes it harder for firms to deal with any unforeseen challenges or opportunities.

It said the trend was being driven by a combination of business growth and falling efficiency in managing customer payments and stock.

Working capital is the money companies uses to meet the day-to-day costs of doing business and tends to increase as they grow or as efficiency falls.

The bank said the fact that the amount of cash tied up in areas such as inventory or unpaid invoices increased by 2% in the past year could be a positive sign for the Scottish economy.

However, it added that tying up too much money in this way put pressure on cash flow – leaving experts worried that with working capital now accounting for 11.4% of Scottish firms’ revenues, many could be left ill-prepared to respond to change. Across the UK, the total amount of money tied up in working capital leapt by 37% in the past 12 months to £680bn.

The bank said this was caused partly by businesses growing, but also because firms – particularly smaller ones – were becoming less efficient at collecting cash from customers.

Simon Quin, area director for global transaction banking at 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.”

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

At the same time, firms’ inventory levels increased by 10.6%, while outstanding invoices increased 10.3%. To deal with the extra working capital, 13% of large firms lengthened the time they took to pay suppliers, compared with just 4% of small firms. Payment terms were the second biggest concern affecting firms’ working capital and cash flow, cited by 16% of businesses nationwide, behind demand uncertainty (31%) and ahead of rising costs (13%).

Firms in the English Midlands and Wales have the greatest opportunity to free up cash, with 12.2% of total revenue currently tied up in working capital. Stuart Mackinnon, a spokesman for the Federation of Small Businesses (FSB) in Scotland, added: “We know that late payment is a huge problem for Scottish businesses, so these figures are worrying, if not surprising.

“We’ve been making the case for the UK Government to take action to ensure smaller businesses don’t get used as a free source of credit by some of the country’s biggest firms.”