A report from the manufacturers’ organisation EEF indicates that manufacturing in the North West now accounts for 15.5% of the region’s total output. This is the third highest total in the UK, and it reflects the growth in manufacturing firms to an impressive 14,560 in total.
The report, jointly produced with accountancy and business advisory firm BDO LLP, records the North West having the biggest improvement in 2016 compared with any other UK region.
However, there is also a note of caution as manufacturing has shown indications of tailing off.
“Commentators have noted that many SMEs in manufacturing feel overstretched, trying to do more with less,” observes Jan Firth of Firth Law, “and one pressure they must deal with is not getting paid on time, if at all.”
Jan is a specialist in debt recovery and enforcement, alongside commercial litigation and dispute resolution.
How Widespread is Bad Debt?
Bibby Financial Services has reported that bad debt among SMEs has increased significantly, to over £20,000 per business, an increase of 70%.
“Bad debt can lead businesses delaying investment decisions, and a consequent build-up in pressure on supply chains. This is not good news for manufacturers, if they are finding themselves squeezed more tightly”
There is a risk that a cash-flow crisis in the manufacturing sector becomes normalised, and therefore limiting further growth.
Late invoice payment has long been a problem for SMEs, with nearly half waiting over 30 days for payment from customers. Increasing numbers of businesses are resorting to the courts to recover money owed, but, as Jan points out, this can be a time-consuming process.
“The one thing a dynamic manufacturing company has in short supply is time,” she says. “In a competitive atmosphere, and one with a certain degree of future economic uncertainty hanging over it, manufacturers need to be able to focus their energies on their core business.”
Combatting Bad Debt
Not all debt comes from late payment, but with many firms waiting over 40 days to get paid, it is a contributing factor. Is this an endemic, cultural flaw, or can manufacturing SMEs do something about it?
“The important thing is not to write off a debt. What businesses need is a proper strategy to combat it”
Jan suggests this is a combination of thorough research in advance of taking on a new client or customer, and of putting firm credit control and debt recovery measures in place.
“Bad debt need not be inevitable,” Jan concludes, “and manufacturers should take professional advice in both managing and recovering debt, so that they are then free to focus on growing their businesses.”