New research from Siemens Financial Services (SFS) estimates that £1.1bn could be freed up for SMEs in the manufacturing sector in Wales through the use of invoice finance.
The report, entitled ‘Trapped Cash in the Manufacturing Sector – Wales’, recognises that late payments are a particular problem for SMEs in the region. Firms in Wales have an average of 27 days beyond term (DBT) before they receive their money.
The manufacturing sector is an important part of Welsh economy, producing around 18.7% of the region’s non-financial business output, the largest of any other region. 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.
Samantha Fray, Business Development Manager – Wales, Siemens Financial Services says,
“Manufacturing is a hugely important contributor of the Welsh economy, and tackling late payments for SMEs is crucial for the integrity of the industry.
“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.
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.
Small Business, How to deal with late payment, 2018, https://smallbusiness.co.uk/how-to-deal-with-late-payment-2100323/
Make UK, ‘Regional Manufacturing Outlook 2018’, https://www.makeuk.org/insights/reports/2019/02/13/regional-manufacturing-outlook-2018