Supply chain pressure raises working capital woes

7 July 2010

7 July 2010 | Angeline Albert

Most UK firms believe they do not have enough working capital this year to take advantage of any economic growth.

According to a survey of 1,500 finance directors across Europe, conducted by consultancy Demica, 65 per cent of UK firms believe their working capital is insufficient. It also found 80 per cent continue to find it hard to get bank credit.

The research, which aimed to measure supply chain stresses, found UK and French firms were under the most pressure.

It also found that 60 per cent of UK, 58 per cent of German and 71 per cent of French companies were unable to sustain any further stretching of payment terms even though half of their larger customers are still trying to extend them.

Supplier failure in the form of company liquidations has increased in European supply chains in the past year by 48 per cent for UK respondents, 47 per cent for German and 57 per cent for French respondents. These failure rates are not expected to decline until January 2011.

Some 69 per cent of UK finance directors blamed the increased price and lack of availability of credit insurance during 2009 and 2010 for major instability in supply chains.

The research found companies are using supply chain finance (SCF) to ease their situations. This is secured on outstanding invoice debt in the supply chain. SCF enables large corporations to extend credit terms with suppliers and use the credit quality of receivables owed to allow their banking partner to finance their suppliers’ outstanding invoices at a favourable rate.

A quarter of European firms have used SCF for several years but UK firms are ahead of this trend with 34 per cent having participated in such schemes. In the UK, 56 per cent of respondents said alternative financing tools are starting to become ingrained into the financial manager’s mindset.

The report is scheduled to be published on the Demica website this week.

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