UK Companies Missing Billions in Potential Savings
The UK economy could receive a vital injection of liquidity if its large organisations adopted a supply chain finance (SCF) model, according to the Procurement Intelligence Unit (PIU). SCF is a buyer-led programme that enables suppliers to get paid earlier while buyers pay later, freeing up cash for both parties and stimulating growth in the economy,
In its report ‘Supply Chain Finance: The Anti-Crunch’, research found that 94% of the 115 chief procurement officers (CPOs) surveyed state that they are looking at ways to improve their company’s working capital. However, with many UK suppliers already close to breaking point, the traditional buyer tactic of increased payment terms is risky business. With financial institutions limiting their lending, many suppliers have folded as they have failed to secure bridging loans or competitive credit rates to bolster their own working capital.
The PIU urges organisations in the private and public sectors alike to embrace SCF as a way of improving liquidity within the economy and helping suppliers, a critical part of any organisation’s ecosystem, to survive the current downturn. The report claims that SCF reduces companies working capital by anywhere between 2.5% and 7.5% of annual spend, a figure supported by several existing case studies. This means that SCF executed just among the 115 global 500 companies surveyed by the PIU, many of which were British, would generate a collective improvement in working capital of at least £7.6bn.
Mark Perera, CEO of the PIU, said: “Our in-depth analysis has found that those organisations embracing the SCF model have shored-up their supply chains, ensuring the increased availability of working capital for both themselves and their suppliers. Respected brands such as Sainsbury’s, Volvo, Syngenta, Nike and Royal KPN are excellent case studies for the effectiveness of SCF and consider it to be a source of competitive advantage. Our estimates show that even if only a proportion of the UK’s largest organisations implemented it, billions of pounds of working capital could be freed up, which would have an unprecedented impact on the economy.”