The hidden cost of SME savings inertia
In partnership with Flagstone, Cebr set out to quantify the divide between UK small and medium enterprises (SMEs) that actively manage their surplus cash and those that do not. By combining a survey of 400 SMEs (undertaken in collaboration with Yonder Data Solutions) with rigorous statistical analysis, we quantified this gap, modelled how lost returns compound over time, and unpacked the factors holding businesses back.
Identifying the performance gap
As with all our work, the challenge was to cut through assumption and quantify the reality, to address a key question: how does the way SMEs manage surplus cash affect the returns they actually achieve?
To explore this, we grouped firms according to how actively they managed surplus cash, with firms classified as active, partially active, or passive based on behaviours such as reviewing allocations regularly and moving funds beyond current accounts. After controlling for firm size, active firms achieved average returns of 3.4% on surplus funds, compared to just 2.3% for passive firms.
While a 1.1 percentage point difference may appear modest, its implications are substantial. Applied to typical cash deposit sizes, this translates to an annual shortfall for passive firms of as much as £18,000 relative to their active peers. Even incremental improvements mattered: partially active firms also outperformed passive firms, generating gains of up to £11,000 annually.
The compounding cost of inaction
Over time, the consequences of savings inertia compound sharply. Our modelling suggests that, if the returns differential remains constant, a typical passive firm could lose out on a cumulative £108,000 over five years relative to an active firm of the same size, and £66,000 relative to a partially active one.
This dynamic reflects a straightforward but easily overlooked mechanic: passive firms don’t just forgo the returns they miss in a given year. Rather, they also forgo the returns that would have been earned on those returns in every year thereafter.
Why do so many firms remain inactive?
Despite the substantial gains associated with active cash management, 44% of firms in the study took a passive approach, with just 28% classified as active. To delve into the causes of this inactivity, we queried firms that had not moved cash to higher-yielding solutions on why they had stayed put.
The most commonly cited barrier was a preference for liquidity, mentioned by 40% of firms. Smaller firms were especially likely to prioritise liquidity. To some extent, this helps explain why so much surplus cash sits in current accounts, though this may also reflect a false trade-off: many higher-yielding options offer significant flexibility.
A question of strategy
We also found that just over half of SMEs (53%) had a formal cash management strategy, while a significant minority (46%) operated without one.[1] Among firms with a formal strategy, common features included deposit protection measures, formal allocation rules, and defined review processes. The fact that nearly half of SMEs have no formal strategy may help explain much of the performance gap identified in the study, while also highlighting a clear opportunity for improvement.
Closing the performance gap
Our findings point to substantial untapped value sitting on the balance sheets of UK SMEs. The barriers to capturing it, such as time, inertia, and the perception that the sums don’t justify attention, are real, but they are also surmountable. Greater awareness of what active cash management actually involves, and the returns it delivers, could go a long way towards closing the gap.
This collaboration with Flagstone is another example of how Cebr’s independent analysis brings underexplored economic questions into sharper focus. By combining survey evidence with rigorous statistical modelling, we help clients turn complex behavioural questions into clear, actionable findings.
If you are interested in establishing a thought leadership programme, or learning more about our approach, click here.
Additionally, for the full cash performance gap report please follow this link: https://www.flagstoneim.com/business/learn/business-insights/the-cash-performance-gap-report
[1] The remainder of firms were either unsure or unable to respond.