SME survey finds growing need for liquidity in EU

The third C2FO Working Capital Outlook Survey finds a greater diversity of funding options as more SMEs seek to increase liquidity.

Eighteen months have passed since the shock referendum decision on the U.K.’s departure from the European Union. Yet fallout from the vote continues to influence business planning and decision-making across the continent.

The repercussions of Brexit are evident in C2FO’s third annual Working Capital Outlook Survey, which the company is preparing for publication early in 2018. The new edition reveals major changes in the business landscape across the European Union since the second edition was published in September 2016.

To offer a sneak preview of the latest survey, it shows that in 2017, two in three of the participating small to midsize enterprises (SMEs), sought additional liquidity over the previous year. However, demand was noticeably stronger in the U.S. and China, the world’s two largest economies, and India, seventh largest and fast-rising. In Italy, one in three small businesses indicated a significant increase in their need for liquidity in the past 12 months. A similar number made a smaller increase, despite the political uncertainty in that country.

As the need for liquidity increases, there is mixed news about its availability. On the positive side, funding options are diversifying and offering SMEs access to working capital outside of the traditional cash flow sources. Yet undermining this are the rising barriers to obtaining that working capital, which limit the reliable, cost-effective solutions that smaller businesses require. Indeed, survey results show Italian firms, in particular, reporting that access to competitive borrowing rates reduced sharply in 2017.

Meanwhile, new regulations in many European countries, such as the U.K.’s Prompt Payment Code, that aim to facilitate speedier payment for the suppliers of large enterprises also appear to have made limited headway. SMEs across the region report they are encountering more payment delays and challenging payment terms.

An indication of the tough conditions comes from insolvency adviser Begbies Traynor, which reports that 2017 is closing with 43,677 U.K. retailers reporting signs of ‘significant’ financial distress, a 22 percent increase on the figure 12 months ago. With reports that British consumer confidence has dipped to a four-year low, the challenges are set to continue into 2018.

So, does the new survey offer any more encouraging news? Fortunately, there are several more positive developments, such as the growing willingness of SMEs to seek early payment from a customer in exchange for a discount.

More are looking to expand their business by accelerating their cash flow, and look to do business with companies that can offer supplier-friendly payment options.

The range of alternative lending options is steadily expanding and SMEs’ readiness to use these newer funding types is creating something of a virtuous circle, by encouraging more alternative financing organisations to launch innovative new facilities. However, the survey indicates a greater readiness by SMEs in the U.S., China, and Italy over their U.K., German, and French peers to avail themselves of alternative funding such as dynamic discounting to access early payment of invoices from a customer.

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