A slow in the growth of China’s economy has caused increased uncertainty for UK manufacturers, but companies should not be put off by the headlines, explains Hitachi Capital Invoice Finance’s John Atkinson.
Despite a slowing Chinese economy, businesses that review their available finance options now to maintain a strong cash flow will be those that take advantage when conditions improve.
There is still growth happening in China, it’s simply not as supercharged as it once was.
Manufacturing companies that plan ahead and invest in their business now will be able to capitalise on the limited opportunities that exist.
Industry body EEF has slashed its output predictions for the manufacturing sector to 0.7% from 1.5% as a result of a whirlwind of factors hitting UK manufacturers, including a slow in China’s economy.
A strengthening pound coupled with the plummeting price of oil has caused a dip in orders for some UK manufacturers, particularly for those developing and exporting mechanical equipment to China.
However, despite a cooling of confidence, it is those businesses that look to other domestic markets and raise the finance to capitalise on the limited growth that will ultimately come out stronger.
Some excellent export opportunities still exist both in Europe and a slowing market such as China, but it is only those companies that are brave enough to seek them out that will break into new grounds. To do this they need to maintain a strong cash flow.
The nature of many export deals means that OEMs require upfront cash to fund the deal, make parts and pay staff. Those companies that know their way around the financial market to fund an export deal can significantly boost order books.
To help fund this outlay and maintain their cash flow position, a company’s unpaid invoices can represent one of its biggest assets, particularly for SME manufacturers.
Utilising alternative revenue streams such as invoice finance frees up vital cash allowing manufacturers to take on a new contract by investing in equipment and extra staff to meet the demands.
It also gives them the freedom to innovate and invest in new products and services which in turn can create more revenue streams in both domestic and foreign markets.
Manufacturers exporting to China, particularly producers of mechanical and engineering equipment have been hit hard by reduced orders from Chinese factories and the plummeting price of oil and gas.
China has decreased its output and as a result, there are fewer demands for certain materials and new equipment.
So, at a time when margins are reduced, SME manufacturers should look to other areas of the business to streamline costs and alleviate the impact of a slow in demand, as well as strengthening their cash flow position.
One area where significant savings can be made is through carrying out a health check of finances and accounts. Some businesses can save between 10% and 20% by taking a fresh look at finance costs and looking beyond the bank for lending.
Some bank loans and overdrafts can be particularly expensive and often require a personal guarantee and rigorous due diligence checks.
Even with major economies such as China slowing, it is clear manufacturing companies need to be more creative and explore all available finance options.
There are a number of innovative financial solutions on the market that come without the added pressures imposed on businesses by the banks and rather than standing still, companies that plan ahead now and make the most of a limited growth period will win the day.