Manufacturers facing post-COVID ‘credit crunch’
8 December 2021
Almost half of manufacturers are now holding higher debt than at any point since the pandemic began, with experts recommending that firms rapidly implement plans to address underperformance.
The findings come from a major survey published by Make UK and audit and tax consultancy, RSM. The survey shows that many in the manufacturing industry are facing the unprecedented combination of a credit, cash and costs crunch.
In addition to the burden of repaying debts incurred during the pandemic, disrupted supply chains and mounting skills shortages are feeding a ‘sharp inflationary spiral’, the report says, while many are also facing a ‘liquidity squeeze’ as customers and suppliers hold onto cash or change their payment terms.
As a result, almost half of manufacturers say their cash position is worse now than at any point since the start of 2020. Six in ten are also planning to take on more debt, and a third are worried about their viability over the next two years due to debt liabilities.
James Brougham, Senior Economist at Make UK, said:
“Industry is facing the perfect storm with a raft of rapidly escalating costs combined with significant levels of debt which many companies took on as a precautionary measure just to stay afloat. Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.”
Mike Thornton, Head of Manufacturing at RSM UK, added that companies needed to consider their position and take precautions:
“Manufacturers are facing a variety of headwinds from staff shortages, supply chain disruption, soaring energy prices and an increased debt burden post-COVID. This backdrop has elevated the risk profile for many UK manufacturers. Considering the position today, rapidly implementing plans to address underperformance is going to be crucial to ensure manufacturers emerge post-pandemic in a strong viable position.”
In order to maintain their cashflow during the pandemic, around half of companies said they had used various government liquidity schemes as a precaution, or took advantage of HMRC tax deferrals.
A similar proportion have also changed their payment terms, and a third have blocked customers who are falling foul of their terms.
Greater Manchester manufacturers that are struggling with cash and credit are encouraged to speak to our Manufacturing Service for advice and support.