New research from Siemens Financial Services (SFS) estimates that £2.5bn could be freed up for SMEs in the manufacturing sector in London and the South East of England through the use of invoice finance.[1]
The report, entitled ‘Trapped Cash in the Manufacturing Sector – London and the South East’, recognises that SMEs in the region are among those most affected by late payments, with 67% of businesses in the South East and 70% in London reporting late payment problems.[2]
The manufacturing sector in London and the South East makes a significant contribution to the UK economy. London and the South East is the largest manufacturing regional economy in the UK, and there were 32,190 manufacturing enterprises in the South East and London in 2017.[3] Manufacturing is largely made up of SMEs which operate within a complex supply chain involving firms across the UK and the world, but which are at more risk of cash flow problems than their larger counterparts.
By using invoice finance, when a company invoices their customer, up to 90% of the approved invoice total is immediately advanced by the finance provider, with the remaining 10% paid once their customer settles the balance. This provides the company with essential working capital so it can then invest in expanding its business without having to wait for bills to be paid.
Invoice finance enables SMEs in the manufacturing sector to tackle the issue of slow and/or late payment themselves; unpaid invoices can be used as an opportunity rather than a burden.
Simon Penn, Invoice Finance Head of Sales – London & the South East, Siemens Financial Services says, “Although manufacturing only accounts for a small proportion of London and the South East’s jobs and output, it is still the largest regional manufacturing economy in the UK. Despite this, SMEs in the region are among those most affected by late payments, impacting their ability to grow.
“More and more SMEs are looking at alternative solutions to fill the gap when it comes to late payments. Compared to traditional lines of credit, invoice finance is a flexible way for SMEs to take control of their cash flow and focus on significant potential growth for the future.”
To download the report, click here: https://assets.new.siemens.com/siemens/assets/api/uuid:8e1d3a60-5f65-4769-870d-7479f8bdc828/version:1578661080/sfs-uk-trapped-cash-southeast-v2.pdf
[1] By taking the average manufacturing DSO and applying this to the turnover of manufacturers in the region we can estimate the value of payments left outstanding. The proportion of companies not eligible for invoice finance has then been removed. This figure is then multiplied by 90% for the amount advanced through invoice finance, and halved to eliminate any exaggeration due to, for example, ineligible invoices and current invoice finance marketing penetration.
[2] Director of Finance, ‘Late payers affect two thirds of small businesses’, 21 August 2018 http://dofonline.co.uk/2018/08/21/late-payers-affect-two-thirds-small-businesses/
[3] Make UK, Regional Manufacturing Outlook 2018 https://www.makeuk.org/insights/reports/2019/02/13/regional-manufacturing-outlook-2018