Brexit Looms As Supply Chain Disruptor

Brexit has introduced a wave of uncertainty into the geopolitical and financial landscape. And for U.K. manufacturers, the pitfalls are numerous, and firms would do well to monitor cash management with a gimlet eye and consistent and constant monitoring of funding risk.

Those are among the key conclusions of Hitachi Capital Invoice Finance, which, through one of its executives, said on Tuesday (Aug. 16) that the biggest threats to corporate stability lie within the supply chain, and of course, should smooth sailing in the supply chain be interrupted, then cash flow can be stymied.

The aforementioned uncertainty on the world stage could also cause lenders to become skittish, limiting the funding they feel comfortable doling out. With the lack of funding flow, firms may find themselves hard-pressed to maintain adequate working capital cushions. For smaller firms, said Hitachi, if credit lines are hard to come by and customers pull away from consistent ordering, those small firms could see hardship to the extent that they would have to close.

As to best practices designed to combat those cash flow pressures, John Atkinson, managing director of Hitachi Capital Invoice Finance, said: “After the credit crunch in 2008, businesses found it much harder to raise finance to fund their business strategies, and many were forced to put their investment plans on hold. While lenders are currently reassuring businesses that they are still ‘open for business,’ this position could change if orders begin to stall and supply chain disruption spreads.”

“The explosion of alternative funding solutions in recent years means businesses have more options, and they should seek advice about how they might use these to bridge any funding gaps and keep investment plans on track … Most manufacturers have established good relationships with their key suppliers, but they may not be aware of potential problems lower down the chain if tier two or three suppliers are heavily reliant on trading links in the EU. By identifying such issues early, it should be possible to put mitigating strategies in place.”

But there is a hierarchy of tasks to be completed as smaller firms look to shore up their flanks. The manufacturers need to undertake a financial risk assessment tied to a number of hypothetical Brexit scenarios to gauge sensitivity (and, ostensibly, to cover bases that might otherwise be overlooked should they come to fruition).

Another conduit for safety comes as businesses can opt to use tools, such as invoice finance, to push risk onto a third party, while obtaining the cash that is needed on hand almost immediately.