Supply Chain Finance – Stocking up for BREXIT

It is now January 2019 and as I currently write this article, the UK has less than three months before it leaves the EU.

Recent events, delays and government in-fighting has led to more uncertainty than ever, meaning, once again UK businesses and enterprise have been left to soldier on and pick up the pieces.

The media is reporting numerous stories of UK businesses stockpiling goods and increasing inventories, particularly in the wholesale, food, medical and manufacturing sectors. The economic think-tank CEBR claims that there is now widespread evidence to show many UK businesses were stockpiling through the second half of 2018, which has now escalated into 2019.

Although stockpiling and boosting inventories potentially resolves some issues; it can, however, also create others. It is therefore paramount that businesses are planning ahead to ensure they remain flexible and are able to swiftly adapt to any challenges in their environments. The primary questions being how much additional stock should be purchased and how it will be financed?

Purchasing stock from cashflow ties up valuable cash reserves making the business less liquid and prevents working capital from being spent on better yielding alternatives. However, if you are purchasing stock through credit lines, there are a range of options available depending on your business, sector or market. Traditional lenders have always offered facilities such as overdrafts and loans, but Sancus can also offer innovative solutions such as Supply Chain Finance.

Supply Chain Finance is an unsecured, revolving working capital facility that is used to buy stock or pay other suppliers. The facility sits off balance sheet with the lender paying stock purchases directly for the buyer, without affecting existing banking lines or security. The facility is then repaid by the buyer at a pre-arranged future date; usually at the end of the trade cycle when debtor funds are received.

This solution facilitates additional stock purchases without using valuable cashflow. It can also bridge lengthy funding gaps between payment of suppliers and inward payments received from customers. The facility also extends creditor terms which means stock purchases can be spread out over a longer term (without any detriment to the supplier). This acts as a working capital injection which can be used to fuel future business growth.

Alternatively, these facilities can be also used to drive discounts from suppliers by offering early payment terms, which often increases buyers profit margins, even when taking into account the cost of finance.

If you’re considering buying more stock as part of your BREXIT planning, or would like to have a wider discussion about financing stock or increasing working capital, then I would be more than happy to see how Sancus can help support you and your business.

Andrew Oppe Regional Director – Sancus Finance 07432 076 091