Despite improvements in global supply chain availability, the British manufacturing industry continues to struggle.
The Office for National Statistics reports moderate growth within the sector (up 1.6% in June), mainly achieved through disproportionate increases in the services subsector. Meanwhile the S&P Global/CIPS UK manufacturing Purchasing Managers' Index continues to fall (down from 46.5 in June to 45.3 in July). And the CBI’s SME Trends survey found that smaller manufacturers had experienced a drop in output for the fourth successive quarter.
These conflicting reports reveal one certainty – uncertainty rules in the manufacturing sector.
Inflation and interest rates reduce demand
As the effects of the pandemic recede, manufacturers are finally seeing the cost of raw materials fall. However, persistent inflation continues to affect purchasing power of individuals and businesses alike. Unsurprisingly, this has resulted in a fall in demand – and output.
Manufacturers are also reporting sharp declines in work backlogs, suggesting the impact of the slowdown will be felt for months to come. Some economists are even warning of a likely recession towards the end of the year as spending remains weak and interest rates remain high across the globe.
Creating problems for the future
With cashflow severely restricted, many manufacturers are delaying much-needed investments, particularly in the SME sector. Failure to invest in buildings, plants and machinery or people could create even more problems in future once demand begins to increase again. Worryingly, the SME Trends report suggests that output and new orders are expected to grow “moderately” between now and October.
This means immediate cashflow issues could have a disproportionate effect on UK manufacturing in the coming months – particularly if urgent investments are not made. No matter how much demand grows, if manufacturers are unable to meet expectations, customers will go elsewhere.
Stabilising cash flow
An important way to weather the current storm and to prepare for the future is to maintain healthy liquidity. Many manufacturers are reporting that late payments are becoming more common, further constricting cash flow. So how can you cover existing liabilities and release cash for much-needed investment?
Sadly there is no magic bullet – you will probably have to make several changes to your accounts payable processes (check out our complete guide for more details). However, you can make instant improvements simply by adding another payment method to your toolkit – a business charge card.
A charge card will allow you to pay your bills on time but retain your cash deposits until the balance is paid – there is often a decent gap between these two dates helping to improve the health of your balance sheet. In this way, you can extend your payment window without incurring late payments charges from your customers or interest due on loans. You also buy time if your customers are late with their payments.
Ready to learn more about business cards and cashflow maximisation for manufacturers? Get in touch with the Allstar team to see how we can help you.
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