SME manufacturing companies forced to hold onto nearly GBP5bn in unsold stock
31 October 2016
- Large inventories can be used to secure vital finance
The value of the unsold stock held by SME manufacturing companies has risen to £4.94 billion, putting cash flow under greater strain, reveals research by the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
The ABFA notes that this figure is up from £4.87 billion last year, with the value tied up in unsold stock remaining stubbornly high over the last five years despite hopes that the fragile economic recovery would allow businesses to clear unsold stock.
The value of this inventory currently amounts to 16% of the £81 billion annual turnover of SME manufacturers. Quickly moving on stock in order to access finance can be difficult, which can cause issues for companies requiring finance in a short timeframe.
Money tied up in unsold stock is money that could have been used for business development or R&D, putting a brake on growth.
However, the ABFA says that businesses can unlock the value tied up in their stock through asset based finance, releasing funding to develop their businesses.
As that finance is in effect a type of secured lending, with the inventory acting as the security, it can often be a more cost-effective financing solution than unsecured lending.
Demand from businesses for this kind of alternative finance is growing, with the value of funding secured against stock by ABFA Members standing at£584m at the end of June – up 56% over the last five years (£373m in 2011).
Jeff Longhurst, Chief Executive of the ABFA says “SMEs are finding it hard to reduce their inventory levels as customer demand remains subdued.”
“But asset based finance can be used as a form of security to unlock the value tied up in stock.”
“Asset based finance can complement an invoice finance facility as well, allowing a business to improve their cash flow – which is especially important for SMEs.”
“By allowing companies to access vital finance, it gives them the opportunity to invest in their business and means that growth doesn’t end up stalled by cash being tied up in unsold stock.”