Appetite for liquidity on track to outpace funding for SMEs

Working Capital Outlook: Supplier need for liquidity on pace to outpace access

The third annual C2FO Working Capital Outlook Survey sheds light on the constantly evolving cash flow situation faced by SMEs, as funding options diversify while barriers shift from a lack of access to affordability. SMEs anticipate an increase in their need for liquidity as they seek to grow their businesses. While many SMEs expressed confidence in access to funding, their growing need for liquidity may be on course to outpace their funding.

SMEs face additional, and sometimes contradictory challenges. For example, delays in payments are on the rise, despite new rules for the U.K. and EU designed to address that very issue.

SMEs face these challenges just as the global economy is picking up speed, spurring economic growth and job creation. Even so, SMEs face higher costs of funding than large corporate enterprises, a cost gap that has lingered since the financial crisis.

The good news, aside from clear signals of economic recovery, is that for every one of these challenges SMEs face, there is an opportunity for their corporate customers to improve supply chain relationships and stability while improving margin, complying with new regulations, and enhancing cash management strategies.

Download the full white paper, “The state of working capital for small and midsize enterprises: challenges and opportunities for the global economy”

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To gain a more nuanced and robust picture of the state of working capital across the globe, C2FO expanded the survey this year, adding executives in China and India to those previously surveyed in the United States, United Kingdom, France, Germany, and Italy. The expansion in the survey participants also resulted in larger average company size, as more executives of midsize firms participated in the 2017 survey.

Survey highlights

SME liquidity is a critical issue for both SME suppliers and their large corporate customers. Here are just a few of most important highlights from our survey, which paints a comprehensive picture of the state of SME liquidity and the reach of alternative sources of SME cash flow.

  • Global political and economic uncertainty, a lack of confidence in the stability of their relationships with their clients, and exchange rate volatility present the biggest barriers to growth, SMEs believe
  • SMEs across the world express an increased appetite for liquidity, with executives in China and India, the two largest emerging markets, experiencing especially high demand for cash flow to run their businesses
  • Use of and interest in alternative funding sources expanded significantly in 2017, with asset-backed lending, supply chain financing, factoring, and invoice discounting leading the way
  • While many SMEs report the ability to borrow at competitive rates, SMEs in emerging markets tend to grapple with far higher rates, especially in India. Across the survey, one-third of SMEs report that high interest rates are their most significant challenge
  • Interest rate, flexibility, transparency of terms, amount of available funds, ease of use, and provider trust and reputation are the criteria that SMEs use when evaluating alternative funding source providers
  • Large corporates are imposing longer payment terms while delaying actual payments, despite efforts in the U.K. and EU to implement regulations to encourage public reporting of payments to SME suppliers
  • SMEs demonstrate a clear preference for doing business with customers amenable to offering supplier-friendly accelerated payment options in exchange for a payment discount

Top survey takeaways

With global competition rising amid a growing economy, securing your supply chain is more critical than ever before. C2FO’s report provides detailed insight into how liquidity impacts SME suppliers, their views on how their business will grow and what sources are supplying them with the cash flow they need.

Some of the key learnings from our survey of more than 2,000 small and midsize enterprises in the United States, the United Kingdom, Germany, France, Italy, China, and India include:

  • Improving access to cash at a competitive cost ensures that SMEs can grow and invest in their operations without increasing supply chain risk for their large corporate customers
  • Unlocking liquidity trapped on balance sheets possesses the potential to expand overall economic growth
  • Expanding liquidity for SMEs brings collateral benefits for their customers through increased efficiency, reliability and cost reduction
  • Rising types and numbers of alternative financing sources, including fintech innovation, possess the potential to improve payment terms and support suppliers
  • Alleviating uncertainty around payments, contracts, and market conditions through collaborative, innovative payment solutions provides benefits for large corporates and their SME suppliers including improving relationships

Gain more insight

Download the complete version of C2FO’s Working Capital Outlook Survey to learn more about SME executives’ perceptions of their current and future liquidity needs and their receptivity to alternative sources of funding including trade finance innovation.