According to the Purchase Managers’ Index, manufacturers saw production accelerate last month, which resulted in companies reporting that they were holding increased levels of stock.
For many, moving stock on quickly is an important aspect of their business plan, allowing them to keep cash flow healthy. If money is tied up in unsold products, it can prevent investment or expansion, and constrain profits. This may therefore be interpreted as a worrying trend and some firms may feel pressure to turn around sales quickly.
However, the good news is that a trajectory of slow, but steady, growth is expected in the manufacturing industry this year. In May, output in the sector grew to the highest level in 2018 so far, and in the short term, a build-up of finished goods inventories need not always be a major concern. In fact, these unsold products can even be used to secure business funding.
In industries where there is potential for growth, unsold stock can be used to leverage a commercial finance solution which enables a business to continue with growth.
UK manufacturers are optimistic about performance over the next 12 months. According to Close Brothers research, 93 per cent of manufacturers expect their business to expand or stay the same in the coming year. This puts the sector two per cent ahead of the UK business average.
With this positive outlook, it is little surprise that three fifths of manufacturing firms plan to seek commercial funding over the next year, with nearly 90 per cent of the sector stating that they feel confident about accessing the funds they need.
Securing business funding
By using asset based lending, companies can release additional funds from money tied up in inventory to continue investing their future.
Asset based lending combines invoice discounting with funds released against other assets. It works by taking the value of invoices and existing assets on a company’s balance sheet into account to secure a loan. The assets considered can be anything from machinery, to vehicles, or in cases like this, unsold inventory. This type of funding solution offers firms an alternative to a bank loan, releasing working capital without interrupting use of assets.
At Close Brothers, our specialist knowledge of the manufacturing sector allows us to provide sustainable funding solutions for our clients. We work with you to produce a bespoke plan, and can fund against inventory on a flexible basis, even in challenging times.