Liquidity matters: funding the future of business

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Insights from the 2016 Working Capital Outlook Survey

Whether you’re a finance or procurement leader for a Global 2000 company or the business owner of a small to medium-sized enterprise (SME), the findings of our 2016 Working Capital Outlook Survey can influence the success of your business.

Now in its second year, the C2FO Working Capital Outlook Survey examined the concerns and preferences for improving the working capital efficiency of more than 1,800 SMEs in the United States, United Kingdom, Germany, France and Italy. It included trends related to economic and political factors, financing, working capital deployment and supplier-buyer relationships, often comparing results with last year’s survey findings. 

We studied SMEs of varying sizes across many industries to better understand their finance needs and perceptions about business relationships with customers. 

Why does this matter? Everyone knows that cash is king, and without the liquidity to run a business properly, there are negative upstream and downstream effects on the economy. The good news is that if global companies work together to improve working capital efficiency, everyone wins. 

Survey highlights: 

  • 55% of SMEs say cash flow is their biggest obstacle to business growth 
  • 52% cannot get funding at APRs below 8% 
  • More than 60% of SMEs are concerned about their ability to nance long-term growth 
  • 76%rely on cash flow from operations to survive and grow 
  • 75% of businesses say it is important that their customers
    offer supplier-friendly accelerated payment options

Macro-factors affecting business growth

This year’s survey included some questions about SMEs’ concerns surrounding the effects of Brexit and the upcoming US presidential election. Despite the uncertainty surrounding these events, the majority of SMEs are focused on long-term rather than short-term concerns and worry more about competition from emerging markets.

Overall 55% of SMEs surveyed considered uncertainty about customer contracts to be one of their top three business growth obstacles, 55% cited cash flow, 51% worried about overall economic and political uncertainty, 38% named the difficulty in adapting to market changes and 35% cited late payment from buyers. SMEs in different markets weighted the concerns somewhat differently, with businesses in Italy particularly plagued by late payments.

Key learnings:

  • Late payments continue to be an issue and have long-term negative effects on the ability of SMEs to operate efficiently. Buyer companies should consider P2P automation solutions to evolve into “just-in-time” payables to support their supply chains.
  • SMEs and their customers would mutually benefit from closer collaboration to alleviate uncertainty about payments, contracts and market conditions.

Borrowing can be expensive & difficult for SMEs

More than 40% of the SMEs surveyed indicated their working capital needs have increased since last year. However, 29% said that they have limited or no ability to borrow short-term working capital. The situation was even more challenging for companies in the UK, where 43% said they had limited or no ability to
get financing.

SMEs looking for financing were mainly concerned about in exible and time-consuming processes to obtain funding and the increasing rate of interest requested by financial institutions.

Overall, only 48% of SMEs surveyed had access to financing at an annual percentage rate of less than 8%. Businesses in the US and the UK that can obtain funding, pay more to borrow compared to their counterparts in France, Germany and Italy.

Access and cost of borrowing vary by industry as well, with SMEs in media, retail & leisure and construction paying higher interest rates than businesses in other industries. These industries along with the food & beverage industry also have more limited ability to borrow.

Key learnings:

  • Buyers can provide access to funding at a cost that is in line with, or even less than, their suppliers’ cost of borrowing by paying their suppliers early in exchange for a discount that is agreeable to both.
  • Early payment of approved invoices adds no risk for the buyer and can significantly improve supply chain health, particularly in support of SMEs with limited or no ability to borrow.

Cash flow from operations is vital for SME funding

When asked about current sources of financing, 76% of SMEs reported that they use cash flow from operations to fund their business. This is incredibly important for buyer companies to keep in mind when considering programs to improve the health of their supply chain.

Compared to last year, an increasing number of SMEs are looking at invoice financing solutions, with almost 20% of respondents using supply chain finance, factoring or invoice discounting to improve their working capital. Businesses in every country have also increased usage of both traditional banking and more innovative programs such as peer-to-peer lending.

  • SMEs are willing to leverage cash flow from operations via invoice discounting if they have customers willing to collaborate.
  • Early payment practices are already established with terms-based discounts, but there is a much larger opportunity to stimulate growth even further by unlocking the potential of invoices, due and owed.

SMEs focus on the future When asked their level of concern about financing long-term versus short-term growth, more than 60% of SMEs overall said they were looking ahead to the long-term working capital needs of their business. The exception was Italy, where long-term and short-term growth needs were more balanced, likely due to the economic and banking instability the country is experiencing.

Among the largest SMEs surveyed, 73% reported a focus on long-term growth.

How would SMEs spend more cash if they had it? Of the companies surveyed, 29% would purchase more inventory or equipment, 20% would invest in new technologies, 12% would invest in employees through hiring, wages, insurance, etc., and 16% would expand operations by opening a new location, exporting to new markets, etc. The majority of the companies have forward-looking plans that could benefit their business, their customers and the economy at large, if and when they are implemented.

Key learnings:

  • Buyer organizations that partner with their supply chain can encourage each other’s success and grow together.
  • Innovation drives industry advancements, so when SMEs can afford to innovate and make improvements to their business, their customers reap the benefits, too.