A supply chain finance platform being jointly launched by insurer American International Group (AIG) and US working capital finance platform Prime Revenue aims to free up funding for the UK’s mid-market, non-investment grade companies.
The partners cite a recent YouGov poll of UK businesses that provide goods or services to large organisations. It found that 17% of their revenue is currently tied up in invoices with non-standard payment terms, suggesting that around £29bn is being withheld from UK plc. More than three in four (77%) of companies have been asked to accept longer payment terms, and 28% say the issue has increased in the past year.
Businesses reported that on average 20% of their customers insist on terms longer than the norm. This can significantly impact on business operations, with respondents saying extended payments affect cash flow (55%), require additional administration (33%) and strain client relationships (29%).
The poll also suggests that the risk of not providing extended payment terms can be costly; one in five respondents report that they have lost business after denying customers longer payment terms.
AIG and Prime Revenue comment that supply chain finance platforms have traditionally been limited to supporting the largest, investment grade businesses, while their own will cater to the thousands of mid-market, non-investment grade companies, by providing financing with the credit risk insured by AIG.
Their solution provides funds that enable suppliers to take early payment less a small discount, while enabling buyers to standardise and potentially lengthen their payment terms. This provides low cost access to working capital on both sides of the transaction.
“The inability to get access to low cost working capital can affect our clients and is holding back thousands of very well run businesses,” said Neil Ross, AIG’s regional manager for Europe, the Middle East and Africa [EMEA] trade credit. “Ultimately, it can have a significant impact on the economy as a whole.
“Leading publicly-rated companies can borrow quickly and with favourable terms to take advantage of emergent market opportunities; now we’re able to extend this advantage to many more businesses.”
Domestic banks could feel the greatest impact from the trend, an East & Partners survey suggests.
A global survey by The Economist Intelligence Unit and Standard Chartered finds that nearly half the firms participating believe they will be more efficient within five years, while one in three sees them becoming longer and more complex.
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