Mind the cash gap: The state of UK working capital 

The UK converts cash faster than many of its European peers, but the advantage narrowed last year. The national cash conversion cycle (CCC) lengthened by around a day to 39.6 days, while businesses had to wait an average of 58 days to receive customer payments (DSO). The wait was far longer for some sectors, exposing a gap between revenue on paper and cash in the bank.

Explore the report to see where working-capital pressure is building and how your sector compares.

• UK CCC was 39.6 days in 2025, placing it in the lower European band and substantially below Germany at 78.7 days and France at 70.4 days. It is forecast to remain broadly stable at about 41 days in 2026.
• UK DSO increased slightly by 0.3 days to 58 days, equal to the Western European aggregate.
• UK DPO fell by 1.4 days to 62 days, as businesses paid suppliers faster.
•  UK DIO declined by 0.7 days to 44 days.

The UK’s cash cycle lengthened despite broadly stable customer collections and a slight reduction in inventory. Businesses paid suppliers sooner, shifting more of the funding burden onto their own balance sheets.

Overview on types of working capital:

• CCC (Cash Conversion Cycle): The time between spending cash on operations and collecting cash from sales, calculated as DSO minus DPO plus DIO.
• DSO (Days Sales Outstanding): How long businesses wait to collect cash from customers.
• DPO (Days Payable Outstanding): How long businesses take to pay suppliers.
• DIO (Days Inventory Outstanding): How long cash remains tied up in stock.

Beneath the surface, structural weaknesses are more visible. The economy is estimated to be several percentage points smaller than it would have been without Brexit-related frictions. Business investment has slowed, productivity remains weak, and UK–EU goods trade has underperformed relative to expectations. Financial markets also reflect this shift, with sterling yet to fully recover and UK equities trading at a persistent discount. Meanwhile, regional convergence has failed to materialise, with many “Leave” areas falling further behind rather than catching up.

Faster payment is moving up the agenda

The Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, proposes maximum payment terms of 60 days, subject to limited exceptions, and mandatory interest on late payments at 8% above the Bank of England base rate. It would also give the Small Business Commissioner stronger investigation, adjudication and enforcement powers. The Government has not yet confirmed the implementation timetable.

What does this mean for UK businesses? Large firms may need greater oversight of payment terms and invoice handling, while smaller suppliers could gain stronger protection against persistent delays.

Working-capital pressure across borders

Western Europe’s CCC increased by 1.8 days to 63 days in 2025, and is forecasted to rise to 65 days when we reach the end of 2026. Across the global economy, companies are expected to hold more inventory in response to energy-security concerns, geopolitical uncertainty and supply-chain disruption, with global DIO forecast to increase by around two days.

For UK businesses trading in Western Europe, pressure may not stop at the border. As Western European partners commit more cash to inventory, changing payment capacity and financing needs could affect UK suppliers and customers. Close monitoring of credit exposure, payment performance and supply-chain dependencies will become increasingly important.

Transport equipment: long payment periods compound high risk

The sector’s high-risk rating is compounded by a UK DSO of 205 days, the longest of any UK sector in the report. Even with strong order books, businesses may face considerable working-capital pressure while waiting for activity to convert into cash.

Pharmaceuticals: low risk, but slower cash conversion

Pharmaceuticals remains a low-risk UK sector, yet its DSO stands at 83 days, well above the Western European and global averages of 69 and 66 days. Even in a resilient sector, businesses need to ensure that strong trading conditions translate into timely cash generation.

Technology services: strong prospects do not guarantee rapid payment

Despite their moderate-risk ratings, UK software and IT services and computers and telecoms record relatively long DSOs of 74 and 72 days. For asset-light software and IT businesses in particular, receivables are an important indicator of liquidity and financial resilience.

Construction: average payment times mask much higher risk

UK construction DSO stood at 60 days, close to the national average of 58 days, but this should not be mistaken for financial resilience. Construction remains a very high-risk, inventory-intensive sector, with a global CCC of around 103 days. This shows why customer-payment times alone do not capture the full amount of cash tied up in its operating cycle.

When cash takes longer to reach the balance sheet, strong credit management, regular customer-risk monitoring and prompt action on overdue invoices can help protect liquidity. Allianz Trade combines trade credit insurance, business intelligence and debt collection expertise to help you assess customer creditworthiness, protect cash flow and pursue growth with greater confidence.

Talk to our team to learn how we can help strengthen your working-capital resilience. Get in touch.

Sources

^{Allianz Research, Cash at risk: Inventories are driving a new cycle of working-capital strain, 16 July 2026}

^{Allianz Trade UK sector-risk assessments. Financial data as of July 2026.}