Manufacturing needs a new finance avenue

The UK is the 9th largest industrial nation in the world, supported by highly technical manufacturing and exceptional quality output and accounts for 45% of all UK Exports.

The people that keep UK manufacturing at the forefront of the world stage are highly experienced and educated, with a workforce that is one of the most skilled in the world yet despite the dynamism and flexibility of this sector, supporting financial solutions seem to lag behind.

There is often a funding gap for even highly successful businesses in this sector, as raw materials and component parts need to be purchased in advance, which can often be several months before their customers can be billed. Furthermore, these customers will often be billed on credit terms, meaning a further delay before any cash is received. They are having to move away from traditional high-street banks and instead look for financial solutions that are more fit-for-purpose, without the laborious sanctions and covenants that come with traditional options.

Most businesses would previously have used overdrafts as their main source of funding but due to changes in legislation [1] many banks reduced their overdraft limits unless they could take property security or move their clients to ABL (Asset Based Lending i.e. Factoring/Invoice Discounting) Facilities. Whilst these ABL facilities can help bridge that funding gap, there are two key issues for manufacturing businesses:

  1. A business can only raise funds once the finished goods have been delivered to the client’s customer and an invoice is raised, meaning the client may still lack cash to buy materials in the first place;
  2. Many manufacturers work to longer contracts with stage payments, which ABLs generally don’t like due to a perceived increase in risk (i.e. non-performance).

This is where alternative finance (AltFi) steps in, being able to structure solutions based on their understanding of the client’s business and offering unsecured lending. AltFi businesses are proving themselves to be the solution to a sector that wants, and has the ability, to grow.

At Sancus we predominantly offer completely unsecured Supply Chain Finance (SCF) facilities for established businesses with a balance sheet Net Worth of £500k+. As these facilities are unsecured they have no impact on existing banking lines and will also sit “off-balance sheet” from an accounting perspective. We can then pay for raw materials or component parts directly to suppliers on behalf of the client, providing repayment terms of up to 120 days. Our SCF facilities are revolving credit lines and once repaid, new purchases can be made. These facilities can be used for suppliers of both goods and/or services, for example sub-contractors would also qualify for payment as part of the facility.

If you think we may be able to help your business grow to the next level, please contact Matt Speed on 07432 055234 or at matt.speed@sancus.com

[1] Charges on Book Debts – Practical Law