Manufacturers should spread their funding risk to counter Brexit uncertainty
Manufacturers need to focus even more closely on cash management and spread their funding risk to counter the current Brexit uncertainty, according to financial management specialists at Hitachi Capital Invoice Finance.
As the country prepares for an extended period of instability and uncertainty following June's Brexit vote, manufacturers could find there is heightened risk of supply chain disruption, which could put pressure on cash flow at this critical time. There is also a risk that access to funding could become restricted.
For smaller businesses, if key customers pull back from orders and credit lines suddenly get pulled, the pressure on cash flow could force them to close.
According to Hitachi Capital Invoice Finance, businesses in the sector should be looking for ways to spread their funding risk.
John Atkinson, Managing Director of Hitachi Capital Invoice Finance, explained: “After the credit crunch in 2008, businesses found it much harder to raise finance to fund their business strategies and many were forced to put their investment plans on hold. While lenders are currently reassuring businesses that they are still ‘open for business’, this position could change if orders begin to stall and supply chain disruption spreads.
“The explosion of alternative funding solutions in recent years means businesses have more options and they should seek advice about how they might use these to bridge any funding gaps and keep investment plans on track.”
Before taking action to protect cash flow, manufacturers need to conduct a financial risk assessment of their business model based on a variety of Brexit scenarios. Such risks are not always readily apparent but can have devastating consequences if left unchecked.
Atkinson added: “Most manufacturers have established good relationships with their key suppliers, but they may not be aware of potential problems lower down the chain if tier two or three suppliers are heavily reliant on trading links in the EU. By identifying such issues early, it should be possible to put mitigating strategies in place.”
From a financial perspective, businesses may wish to avoid getting into a situation where they are spending more time chasing payments and managing bad debt. By using flexible finance solutions, such as invoice finance, they can pass ownership of any unpaid invoices to a third-party organisation, which assumes responsibility for recovering the money. At the same time, the business benefits from almost immediate access to finance, which it can draw down as needed.
Atkinson concluded: “Businesses learned a lot during the last economic downturn. They know the importance of careful cash management and ensuring the business has access to the funding it will need to take advantage of any improvement in trading conditions in the future.”
John Atkinson is Managing Director at Hitachi Capital Invoice Finance.