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The Cash Accumulation Paradox

Companies store up cash in an effort to improve the predictability of their business, but in the long run, cash hoarding may have the opposite effect.

By Treasury & Risk Staff | Updated on November 19, 2014
It’s no secret that businesses around the world have been hoarding cash since the Great Recession. On the surface, this makes sense. Money in the bank is readily available when it’s needed for investments, and it can serve as a financial buffer should hard times hit again. However, many companies accumulate cash by squeezing their suppliers—a practice that a recent survey suggests may undermine the stability of the economy overall.

The study was completed by MasterCard and e-invoicing provider Basware. It polled 1,015 finance decision-makers with a view of both accounts receivable and accounts payable. Respondents were distributed roughly equally across 10 countries, including the U.S., Australia, the U.K., Germany, and six other European nations.

Among these respondents, almost half (48 percent) said their company has more cash in the bank today than it had a year ago. Only 11 percent said their company’s cash position has weakened in the past year. Businesses that are cash-rich have used a variety of tools to reach that state.

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