The third annual C2FO Working Capital Outlook Survey reveals a convergence of trends across the globe, bringing a shared set of opportunities and challenges for international small and midsize enterprises (SMEs) as well as their corporate customers.
The survey examined the preferences for improving working capital efficiency of more than 2,672 SMEs in the U.K., Germany, Italy, France, China, India, and the United States during August and September 2017. Respondents’ sentiment was gauged on trends associated with economic and political factors, financing, working capital deployment and supplier-buyer relationships.
Rising need for liquidity and improved access to financing countered by rising cost of borrowing and uncertainty
Globally, the need for liquidity increased and funding options are diversifying, allowing SMEs to access working capital outside of traditional cash flow sources, a positive trend that can help reduce supply chain financial risk. With improved access to funding, barriers such as cost are the primary concern for SMEs, especially those in regions where interest rates are high or rising. This finding underscores the tenet that if funding is not affordable, access does not matter.
The 2017 survey data was notable for an “uncertainty paradox,” where positive signs of economic recovery, potential growth, and improved SME access to funding are countered by SMEs reporting uncertainty, both geopolitical and a lack of confidence in customer relationships. The survey findings highlight other such contradictory trends including delays in payment and challenging payment terms on the rise despite the new EU regulations designed to facilitate prompt payment of large enterprises to their suppliers.
The good news, aside from clear signals of economic recovery, is that for every challenge SMEs face, there is an opportunity for corporates to improve supply chain relationships and stability while improving margin, complying with new regulations, and enhancing cash management strategies.
- Two-thirds of SMEs indicate an increase in need for liquidity from 2016 to 2017, India and China reflect the highest demand, fueled by their rapidly growing economies
- As the economy recovers, SMEs may be entering a new era of high growth; their need for liquidity may outpace access to funding especially as rates increase
- Alternative sources of financing from fintech companies will be critical to meet increasing demand for affordable funding
- There is a significant opportunity for corporate customers to support SME suppliers with access to low-cost funding, especially in regions with rising interest rates
- SMEs cited finding competitive financing is their biggest challenge, with 31 percent noting high interest rates, not access, as their barrier
- One in five SMEs still reports difficulty in obtaining a loan from traditional banking partners
- Despite positive economic signals, SMEs surveyed cited political uncertainty and lack of confidence in customer relationships as the largest potential obstacles to growth
- For 2017, one-quarter of SMEs report an expansion in the number of customers imposing longer payment terms despite new regulations for the EU
What is new this year
The survey expanded for 2017, adding businesses in China and India to those previously surveyed in the United States, United Kingdom, France, Germany, and Italy. The expanded set of respondents paints a more nuanced and robust picture of the state of working capital at yearend for 2017. The expansion in the survey participants also resulted in larger average company size, as more owners, CFOs, and financial directors of midsize firms engaged in the survey this year.
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