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UK Manufacturing: Protect Your Cash Flow in These Uncertain Times

Posted by David Stokoe 23 May 2016

The recent Manufacturing Outlook survey by The Manufacturers’ Organisation (EEF) reports that although the industry is showing signs of stabilisation in Q1 2016, manufacturers remain cautious with continued global and domestic uncertainty.

The survey reported that some sectors of UK manufacturing had a brighter outlook than others with industries such as transport, chemicals, and pharmaceuticals more optimistic than steel and energy companies, where the commodity crash has hit particularly hard.

Slower economic growth in emerging markets such as China is dampening demand for UK exports.  Uncertainty surrounding Britain's potential exit of the European Union is also adding to manufacturers woes.

Protecting your cash flow

Ensuring that your company has adequate cash flow and access to capital is important not only for operating today but for investments in the future of the business. Given the economic environment, suppliers may seek credit more frequently and leave you more exposed to credit risk. The reasons for default can be wide-ranging; from technological change and shifting consumer demand, to political upheaval and policy changes in key markets. In today’s climate bad debt write-offs can push a company to the limit.

Credit risk is an area that is often overlooked, yet the impact of a bad debt on the business can be catastrophic. Aggressively and proactively managing your credit risk can improve your cash flow, leaving you less exposed.

In light of current conditions, you should be placing even greater scrutiny on your customers to make sure overtrading is not occurring and avoid pitfalls from resulting insolvencies.  

In addition to sound risk management, you could consider transferring your risk through credit insurance, which can deliver tangible benefits to your business, such as:

Safer busi​​ness growth

Credit insurance can help you more confidently expand your sales to new and existing customers and markets. It also enables you to sell on open account terms, which can be a major competitive advantage, especially for exporters.

Better borrowing and financing options

Your business may be able to secure better borrowing terms with the security that credit insurance provides. In some cases, your bank or lender may actually require credit insurance in order to qualify for a loan.

Cash-flow protection

With a credit insurance policy, you can better control and protect against bad-debt losses. You can minimise your risk when exploring and developing new markets. It also gives you the reassurance that your invoices will be paid (subject to policy terms and conditions) even if your customers default, which is critical to protecting your cash flows.

If you need help with reviewing your position, please contact us via your usual Marsh representative or go to our Manufacturing page for more information.

Related to:  Manufacturing , Trade Credit

David Stokoe