Cash is king at the moment and financing the supply chain is a key issue for companies, both large and small. A vital element in that is the role of the supply chain insurers which provide cover against the risk of not getting paid for goods and services.
So the latest survey of UK companies by one of the largest insurers, Euler Hermes, makes instructive, though not uplifting, reading.
“The cash flow position of UK corporates deteriorated markedly during the first quarter of 2009, falling by 5.2 per cent… Sector level data showed construction companies and distributors signalling the largest declines in free cash flow,” according to the Euler Hermes Cash Flow & Profit Survey of UK Companies Q1 2009.
In addition, it said that “payment delays from both domestic and foreign-based clients rose at series record rates in the first quarter. There were many reports that clients were struggling to make payments due to difficulties with their own cash flow.”
Trade credit insurance is vital in oiling the wheels of the global economy and a critical problem for many businesses has been a reduction in their level of cover.
In fact, the UK government was so concerned about this that in the Budget earlier this year it launched a scheme providing up to £5bn of additional trade credit insurance to businesses who have suffered reductions in their level of cover.
Clearly, it takes time for such measures to take effect. But, given the harsh assessment of the insurers, it is premature to think that this is a problem that has been solved. When the economy starts to turn around it would be absurd to see it held back because of financing problems in the supply chain.