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More than US$5.5 trillion was tied up in working capital – the cash businesses need to run day-to-day operations - by the start of 2021 as logistics, supply chain and inventory issues beset global markets

Nov 26, 2021

According to the latest PwC Working Capital Study 21/22, the time businesses need to convert working capital into revenue - Net Working Capital days - exceeded six weeks, a record high. 

Breakdowns showed that:  As customers delayed payments, the Days Sales Outstanding - the length of time taken for invoices to be paid reached a five-year-high, increasing to almost eight weeks (54.1 days), up seven percent annually. At the same time, and partially as a knock-on effect, companies stretched their creditors, with Days Payables Outstanding also increasing by seven percent to more than 10 weeks (72.2 days), breaking a four-year trend of shortening payment days. With increased uncertainty over demand and supply, the time inventory remained on shelves before being sold increased by five percent to more than eight weeks (59.5 days).

Daniel Windaus, business restructuring services partner at PwC, said: 

“With ongoing instability in the global supply chain, including port closures, limited shipping lane availability, lack of HGV drivers, and shortage of raw materials, managing inventory is a key focus. The risk of excess is just as prevalent as the potential for insufficient stocking.

“As issues come to the boil in the wholesale energy sector, there will be knock-on effects on companies’ working capital requirements.”  

While working capital consumed a larger portion of capital, significant government support and readily available debt have allowed many companies to sustain a strong cash position - for now at least. Cash days (represented as days of cover for operating expenses) have increased by 14 days to a five-year high.

However, the nominal value of working capital has changed very little during one of the most significant demand and supply shocks for many years.

While overall nominal working capital remained fairly flat, outside of a peak in Q3 2020, analysis of the components of nominal working capital reveals that inventory, which is a leading measure due to the need to build up stock ahead of the return of revenue, saw a sharp increase of 22% (0.6trn Euros) in Q3 2020 before declining in the next quarter.

Even before the pandemic, there were growing concerns over global supply chains and the availability of goods. The sharp decline in the last quarter of 2020 could be explained by scarcity rather than normalising inventory requirements. By the second quarter of 2021, inventories were up seven per cent from pre-pandemic levels.


Daniel Windaus, continued:

“The deterioration in working capital performance reflected the exceptional volatility experienced by many companies. The pandemic also exposed the slow reaction of supply chains to external shocks. Lead times and replenishment strategies are being stretched even for regional supply chains, meaning safety, stock and inventory policies need to be adapted regularly. 

“The lag between the cash outflows from sourcing materials and producing inventories ready to sell, and the cash collected from sales is lengthening.”

Sector snapshot

The analysis shows 10 out of 17 sectors saw a deterioration in NWC days between 2019 and 2020 with four sectors- aerospace & defence, hospitality & leisure, automotive and energy & utilities seeing a double-digit deterioration, reflecting the shock suffered in these sectors during the pandemic.


Daniel Windaus, said:

“There is a perfect storm of supply constraints and rapidly changing consumer demand. Companies are having to re-evaluate planning and production. Shortages of raw materials will inevitably result in stock shortages and operational disruptions in manufacturing businesses. Logistics, volatility, as well as the drive to Net Zero, are likely to lead to an increase in nearshoring where possible, along with a heightened focus on the stability of critical external suppliers.”



Notes to editors 

Working capital is a measure of the cash tied up in funding the day to day operations of a business, consisting of amounts due from customers and stock on hand, but offset by amounts due to suppliers- continues to be pressurised by unstable supply chains.

PwC analysed over 20,000 firms

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