Payment terms are obviously important. Scaling from payment within 14 days to 60 days, the SCFi scores 7.3 down to a low of 5.5. Liquidity within the supply chain impacts on the overall efficiency of the supply chain.
So Why Is Supply Chain Liquidity So Important?
Firms at the lower end of the supply chain are less positive about growth prospects, than those that are end user suppliers. They have also been more susceptible to disruption and have greater requirements to hold stock impacting on working capital ratios.
The report confirms, greater liquidity in the supply chain would improve overall business performance. Greater confidence in cash flow and liquidity levels, would result in higher levels of investment, more employment, and higher growth rates. Higher confidence in the security of the supply chain, would also result in greater investment in labour skills and the level of apprenticeships. There can be little doubt from comments within the survey: business productivity would improve as a result of improvement in supply chain liquidity.
Business Productivity Would Improve as a Result of Improvements in Supply Chain Liquidity
In construction, 31% of firms said they would be able to recruit more staff, grow more quickly (28%) and invest in plant and machinery (25%). In manufacturing, the priority was to spend more on higher levels of investment 33%, enabling (21%) to grow more quickly. In the services sector growth and recruitment were most likely to be the beneficiaries.
The view within the construction sector was that of a significant and progressive deterioration in supply chain strength since 2009. In every sector, it is the largest firms who take the longest to pay. “Payments from large suppliers are crippling us,” the comment often heard.
Now thanks to the URICA SCFi Supply Chain Funding index, we can quantify the strength or weakness of the supply chain by sectors, size of company, amongst importers, exporters and where businesses are positioned in the supply chain.
The Real Gain from the Supply Chain
“With the benefit of the URICA SCFi, we can begin to realise the benefit to the economy from greater liquidity and improved payment; it is much more than improving a lot of the small business and those at the end of the food chain.”
Improvements in supply chain liquidity will lead to higher levels of capital investment, more jobs, faster growth and improved productivity. Security of cash flow would lead to higher levels of skills training and greater investment in apprenticeship levels in construction, engineering and manufacturing specifically. Sectors most likely to benefit would be construction, manufacturing and engineering.
Should We Look to Government to Intervene?
Government intervention is unlikely to yield much improvement in mandated payment terms or approved financial penalties for late payment. Small firms will always be more vulnerable to the larger customer on whom cash flow depends. Taking the biggest customer to the claims court is not great for future trading relationships.
Improvements in supply chain liquidity are best achieved by a private sector solution. Improvements in the URICA SCFi will emerge from the liquidity acceleration.
We believe a 10% improvement in the Supply Chain Funding index would lead to a 3% increase in growth and productivity. The URICA Supply Conditions Funding Index has provided clear insights on how this can be achieved.
We look forward to the insight updates in the years ahead.