Britain’s manufacturers are facing tough conditions as political uncertainty continues to threaten the economy. However, despite a lack of clarity on the Brexit deal, the UK’s leading producers appear to have confidence in their ability to ride out the storm.
Findings from the most recent Close Brothers Business Barometer suggest that at the end of 2017, the country’s manufacturers had a more optimistic view of both their own prospects and the general economic outlook.
In December 2017, 45% of manufacturing firms said their businesses were “fairing much the same as it was a year ago” compared with a quarter who felt their “business is prospering in the current economy”. And in the same month, 18.9% of all businesses surveyed said they were “confident about the steady recovery of the economy”. But among manufacturers, the figure was 23.8%.
A recent survey by EEF has shown that investment in the manufacturing industry has decreased over the past two years. This slowdown has been attributed to the growing uncertainty surrounding Brexit, however there is a marked split between future investment plans.
The majority of manufacturers (51%) intend to spend more on plant and machinery within the next two years, with this group intending to replace outdated equipment and pursue new opportunities. However, doubts around Brexit are motivating the decisions of the firms who are choosing not to invest.
Late payment issues
The Close Brothers Business Barometer research has also highlighted the ongoing problems that manufacturers face in coping with late payment of invoices.
The results have shown that such firms are typically owed larger outstanding sums than companies in other industries, making it problematic to invest in growth. In the most recent survey carried out in December 2017, 41.4% of manufacturing businesses said they were owed between £21,000 and £40,000 in late payments whereas 33.8% of firms across all industries were owed as much.
As such, manufacturers’ operations are being constrained. December’s Barometer, for example, showed that 75.9% of manufacturers said late payments made cash flow difficult to manage.
The administrative burden is also higher among manufacturers: in December, 48.3% said they spent at least two days a month chasing up outstanding invoices compared with an overall average of 31.2%.
So why are manufacturers more prone to late payments? One possible reason is that they are likely to be doing business with larger customers which may feel more able to delay paying bills without worrying about upsetting their suppliers – an approach that smaller customers may be reluctant to take.
Equally, the nature of manufacturing provides more scope for customers to raise quality issues, for example, which can lead to delays in invoices being settled.
Government assistance with late-payment issues
The late payment of invoices is a perennial problem for businesses of all types.
In 2013, the government updated late payment laws to limit payment terms to 60 days – unless both businesses agreed otherwise – and gave suppliers the right to charge interest on overdue invoices at 8% above the Bank of England base rate.
However, media reports suggest that customers of larger firms in particular continue to suffer from late settlement of invoices. The Conservative government has recently appointed a small business commissioner. One of the commissioner’s priorities will be to help companies deal with the impact of late payments, and to ensure they are aware of the relevant legislation and of the mediation services which can help settle disputes.
But given that manufacturing firms tend to be larger organisations – as supported by turnover figures in the Close Brothers Business Barometer – it remains to be seen how much support they will receive from the new commissioner.
The importance of the right funding solutions
Whether it is dealing with late payments, coping with fluctuations in demand or looking for money to invest in new plant and machinery, access to funding is likely to be crucial for any manufacturer.
The challenging climate that manufacturers face means that, as much as in any industry, these firms need dynamic funding solutions that enable them to react quickly to changing market conditions. The right credit partner can help businesses identify a credit facility that is better tailored to their exact circumstances and needs.
The right lender will have the experience and willingness to play a more integral role in the company’s operations – for example in identifying potential issues in stock turnover and type of debt before they develop into more serious problems. Creating a solid, long term relationship with a more flexible provider today could pay even greater dividends in the long run.