Paul Christensen, Co-founder and CEO, Previse
Brexit has created unparalleled economic uncertainty and businesses are having to prepare for its effects – much of which remains unknown as the terms on which the UK will exit the EU are not yet fixed. But if businesses are to meaningfully benefit from stockpiling and not face a cash-crunch, the way stockpiling exposes SMEs to greater financial risks needs to be mitigated.
Now that there is a third deadline for the UK’s departure from the EU, many businesses will have to stockpile once again to prepare for Brexit. While stockpiling may help businesses through the UK’s transition out of the EU, it puts a strain on their supply chain and cash flow. Businesses need to be in a very firm financial position if they are to hold stock at the volumes needed to mitigate the effects of Brexit on the supply chain.
Stockpiling requires using limited cash reserves, to purchase stock at greater volumes and is done as the deadline approaches to ensure that the availability of goods and services can be maintained beyond any period of disruption created by Brexit. Each time a deadline has approached, businesses have had to increase the stock they hold only to have to unwind their position as the deadline has passed without a resolution.
To further complicate the problem, the second Brexit deadline – in October – coincided with the beginning of the peak shopping period for consumers. This means that businesses have been stockpiling not only in preparation for the UK’s departure from the EU but also in anticipation of Black Friday, Cyber Monday and the weekly sales that are now a staple of the retail calendar in the lead-up to Christmas. With the typical household spending 25 per cent more than average over this period, businesses cannot afford to be understocked and miss out on a vital retail opportunity.
Therefore, SMEs are facing pressure on multiple fronts – cash, product stock, consumer confidence and profit margins all hang more precariously in the balance.
Greater stock levels = greater financial risk
These risks are somewhat overlooked in the broader discourse relating to Brexit. But SMEs are the bedrock of the UK economy, accounting for 99.9 per cent of all private businesses. Therefore, it is critical that these risks are adequately addressed.
The use of technology can help to alleviate some of these risks by freeing up cash, particularly through the adoption of instant payments. With a system that can pay invoices instantly, cash is released to the supply chain a lot earlier and the risks to an SME’s cash flow are reduced.
Previse’s InstantPay works in this way. Suppliers who are already onboard get paid within 24hrs of issuing an invoice. It makes it easier for them to weather these stockpiling issues, freeing them to build their business, rather than chasing down unpaid invoices to get the cash they need.
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