As a result of many larger corporates introducing extended payment terms, Investec Growth & Acquisition Finance, part of Investec Specialist Private Bank, has seen a significant rise in demand from suppliers to those corporates for increased debt to fund the negative working capital impact.
This comes at a time when for most businesses their latest audited accounts relate to the economic downturn period, making some traditional banks that link limits to historic accounts reluctant to provide further support. In addition, according to Investec, the growing trend for extended payment terms is creating a ‘double dip’ effect for these suppliers, by adding to their existing difficulties in accessing extra funding to support growth in such a delicate phase of economic recovery.
A number of high profile companies have recently announced extensions to their supplier payment terms. This includes the retailer Marks and Spencer, which said in August that it would double a large number of supplier terms from 30 to 60 days1.
Indeed, according to the Credit Research Foundation (CRF), 94% of firms say that their customers are leaning on them for extended payment terms, resulting in a negative impact on suppliers’ working capital and costs.
Gary Edwards, Investec growth and acquisition finance, said: “We have seen a substantial increase in demand for financial support from suppliers who have an increased working capital requirement due to the extension of payment terms at a time when increased funding was already needed to finance growth. We focus on strong management teams with compelling businesses. In many cases we have been able to provide firms that fit this model with flexible solutions to help with such issues through our asset based lending offering, which can be adapted to suit individual company requirements.”
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