With approximately a quarter of our factoring and invoice discounting clients being based in the manufacturing industry, Skipton Business Finance like to champion the cause of hard-working manufacturers.The sector has had it pretty tough in recent years, as energy and material costs have increased, profit margins have been put under pressure and a weakening global economy has severely impacted on exports and output levels. Here at Skipton Business Finance, we really feel that manufacturing firms are the backbone of the UK economy and need supporting. They contribute approximately 15% to the UK’s GDP and employ over three million people, being especially important in the North of England, where, historically, manufacturing excellence has been concentrated over the years. The UK should be proud of its long-standing manufacturing heritage and we believe we should do all we can to support such businesses, as, once lost, they are lost forever, with a generations of skill and knowledge disappearing with them. But how can everyone go about supporting this crucial industry? The answer’s simple.
Buy British
There are other ways we can support our manufacturing industry, but the most direct and advantageous is to buy from UK businesses, rather than sourcing products from overseas. This is not being jingoistic or overly patriotic, it’s merely acknowledging the practical benefits of ‘buying British’ when compared to the potential pitfalls of importing from geographically-distant countries such as China or Taiwan.
Pitfalls of importing goods
When importing from countries thousands of miles away, there are numerous issues which need to be navigated:
- Having to order by the container load
This means the business potentially must hold greater levels of stock than they would normally. Buying the product in bulk may make the product cheaper by individual item but it can tie cash up in stock for longer periods, causing potential cashflow issues. Businesses may even find that the cost of financing this cashflow, particularly if using bank funding, negates the benefit of the cheaper price when all put into the mix.
- Having to pay cash up front or by Letter of Credit
This again tends to tie up much needed cashflow and can max out bank facilities, eroding savings originally made on margins.
- Time spent in transit
With product potentially taking up to six weeks to be delivered, there is little ability to replace stock quickly if orders significantly increase. Businesses therefore have to plan their purchases well in advance, again tying up much needed cash.
- Time zone and language differences
Whilst most exporting countries adopt English as the universal business language, there are still cultural differences and language problems, which tend to rear up especially when things go wrong. Add into the mix time differences, where a UK business is only able to speak to their overseas supplier between 5pm and midnight, and sorting out any issues can become an even bigger problem.
- Quality control issues
With many manufacturing plants being newly established overseas, there are often quality issues which do not come to light until the product arrives in the UK. By then, orders cannot be fulfilled and replacement product is another six weeks away.
- Currency exchange rate risk
When buying in currency, the markets can change dramatically by the time the product arrives in the UK and, whilst there is always the chance the business could be on the right side and make a profit, equally a movement against them could soon erode any margin they were making.
- Intellectual Property theft
It is a well-known worry that many manufacturers have placed their products abroad to reduce cost, only to find their idea has been reverse-engineered and an overseas competitor is now flooding the market with a cheaper version of their product.
Why buy British?
It’s always easier to deal with a business you can visit and see for your own eyes, but you’re also set to benefit from an overall smoother process if you buy from UK manufacturers:
- Credit terms can normally be negotiated to improve cashflow
- Deliveries can be in smaller batches, so reducing the need to hold high levels of stock which consequently frees up cashflow
- Urgent requirements can usually be met in short timescales, sometimes even the same/next day providing there's responsive customer service
- The supplier can be visited and the quality checked on site, with any problems being sorted quickly and efficiently within the working day
- There is no exchange rate exposure
When putting all aspects together, perhaps it's worth paying that little bit extra for peace of mind.
The future of UK manufacturing
We all need to do our best to keep UK manufacturing alive and consequently help the wider economy as a whole, which is why SBF are championing their cause and allocating funds to lend specifically to manufacturers. If your manufacturing business could do with an extra cashflow boost to help spur growth, why not visit our page on invoice finance solutions for manufacturers or give us a call on 0845 602 9354 for a chat and a no-obligation quote. We want everyone to do their bit and look to source from the UK wherever possible. And you never know, you might just be surprised with how good we still are at making things!