Small to medium enterprises (SMEs) on both sides of the Atlantic are more concerned about competition from emerging markets and higher interest rates than the effects of Brexit and the US elections in November, reports C2FO.
The financial technology company, known for its development of a working capital marketplace, researched the preferences of 1,860 small business owners in four major European economies and the US for improving working capital efficiency. The data draws out information on trends associated with economic and political factors, financing, working capital deployment and supplier-buyer relationships.
According to C2FO’s latest annual Working Capital Outlook Survey, borrowing is most expensive in the UK and US as only 42% and 47% of SMEs respectively borrow at a rate below 8% compared to France (52%), Germany (51%) and Italy (58%). In the UK and US, these numbers fell from last year (48% and 58%), demonstrating the increasing cost of financing. Firms in the media, retail/leisure and construction sectors are borrowing at the highest rate compared to other industries.
More than half the SMEs surveyed (55%) find cash flow as the biggest obstacle for business growth and over 40% indicated an increase in working capital needs compared to last year. Meanwhile, 29% of respondents have no or limited ability to borrow, due primarily to high interest rates and the difficulty in obtaining a loan from a traditional banking partner.
“The aberrationally low interest rate environment is polarising the global liquidity imbalance,” said Sandy Kemper, chairman and chief executive officer (CEO) of C2FO.
“Corporates are increasingly being charged to hold deposits, while the banks themselves are struggling with increased regulatory burden that impedes their ability to loan to the SMEs which are such an integral part of the global economy. It is therefore increasingly important for those SMEs to consider alternative financing options that can close this gap and kick-start economic growth.”
More than 60% of SMEs are concerned with their ability to finance long-term growth. While the UK, Germany and France show high levels of concern (over 60%) around financing long-term compared to short-term growth, Italian SMEs are equally divided – mirroring the country’s current economic and banking instability.
“If SMEs had access to additional reasonably priced liquidity, more than three quarters would use it to finance long term growth plans and purchase more inventory or equipment and invest in new technologies,” reports C2FO.
Overall, SMEs are adopting a wide variety of sources to finance themselves including traditional banking options like credit lines and asset-back loans which have increased in popularity since 2015, especially for larger SMEs. Invoice financing solutions (ranging from supply chain financing, factoring and invoice discounting) provide funding to almost 20% of the surveyed SMEs and 18% use peer-to-peer (P2P) lending.
Cash flow from operations remains the most significant source of SME funding with 76% of SMEs in Europe and the US relying on their own profit to survive and grow. Unlocking the potential of invoices, due and owned, appears to be the favourite SME working capital strategy, even compared with 2015 (58%). Additionally, over 75% of SMEs in Europe believe the Brexit referendum will have no impact on their ability to access financing.
Early payment options important
Late payment practices are prevalent with 19% of SMEs reporting that their customers often pay invoices later than expected. In the US, the percentage of late payers has decreased from 20% in 2015 to 14% in 2016. The opposite is the case in the UK, where late payments occurred more frequently in 2016 (20%) compared to 2015 (11%). In Italy, 50% of customers pay their invoices late to the surveyed SMEs. The largest SMEs can rely on the most customers paying on time (83%).
When deciding which customers to do business with, 75% of respondents agree that it is important that their customers offer supplier-friendly accelerated payment options. In the US, the perceived importance of early payment facilities has increased from 56% in 2015 to 77% in 2016.
“The increasing need for liquidity is pressing SMEs to pursue a variety of funding sources,” said Colin Sharp, senior vice president (SVP) Europe, the Middle East and Africa (EMEA) at C2FO. “However, as the large majority of SMEs still finance themselves with cash flow from operations, there is a significant opportunity for businesses to optimise working capital through better relationships with customers and better use of accounts receivables [ARs].”
The US Federal Deposit Insurance Corporation is suing nine European banks for allegedly contributing to the collapse of 39 US banks that had a collective value of more than $440bn (€375.6bn).
A study of the leadership pipeline at the UK’s FTSE 100 corporates shows modest progress, but many top companies still have no ethnic minority presence.
The world’s second-biggest economy will grow faster than previously predicted over the next four years, but the rate is unsustainable unless China addresses the problem says the International Monetary Fund.
The insurance industry will also benefit as private businesses increasingly bypass the public internet and communicate with one another direct, predicts Equinix.