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Finance & related services

When uncertainty becomes the norm

By Jerzy Dąbrowski, CEO, Bibby Financial Services Poland
Header jerzy d browski bibby financial services


In recent months, the media has been constantly flooded us with reports about economic threats such as risk of losing important data, currency crisis, environmental risk and the potential economic effects that may come with it, Brexit and the rivalry between US and China.

What do the world’s small and medium-sized businesses have to say about operating in such a risky climate?

2019 Global Business Monitor reveals insights from SMEs around the world

In partnership with Euler Hermes, this year’s report surveyed 2,300 SMEs across 13 countries: Canada, USA, Ireland, UK, Netherlands, Belgium, France, Germany, Poland, Czech Republic, Slovakia, Hong Kong and Singapore. The report presents the opinions of owners and senior decision-makers of SMEs across the manufacturing, construction, wholesale, transport, and services sectors.

Overall, the proportion of SMEs voicing concern about the global economy has fallen to 56%, down from 65% in 2017. However, only 20% of SMEs think the global economy is performing well, down from 30% in 2017. Why has concern decreased if business leaders think the global economy is in worse shape?

According to David Posting, Bibby Financial Services’ global chief executive, SMEs have got used to the uncertain situation on the economic market.  “If compared with our findings in Global Business Monitor 2017, when almost two-thirds voiced concern about the global economic outlook, these results show an improvement. It remains to be seen whether business owners are indeed more positive about global prospects, or if they are becoming accustomed to the possibility of a downturn and, in pockets, are taking advantage of the changing environment.”

Of course, they are well informed about the economic situation in the world. SMEs nowadays are a very important part of the global economy and make an enormous contribution locally.  According to the World Bank, these businesses contribute up to 60% of employment and up to 40% of GDP in emerging economies.

It makes sense to treat SMEs as a sentiment barometer. They react to international trends, respond to technological advances, and form the nucleus around which local economies revolve. According to the SMEs surveyed, when asked for the top three threats to global economic growth in 2019, the answers were the political situation in the US (42%), Brexit (35%) and rising raw material costs (23%). This is broadly the same as in 2017. But they are not so concerned about these threats, because they think that in reality most of these risks will never affect their own supply chain.

So what are SMEs afraid of?

According to the report, the 2,300 SMEs surveyed identified rising overheads/cost (42%), red tape (36%) and cashflow (32%) as the top three challenges faced. They are also expected to remain the top three for the next 12 months.

Companies are living their problems; they are concern about shortages in qualified staff as well as cashflow. Skills and staffing continue to be a top issue for SMEs. Owners are afraid that they are less attractive then big corporations. Cashflow has become a greater challenge in the intervening period, moving from fifth to third on the list of challenges (compared to 2017). Owners of the SMEs are afraid of bad debts, because one in three SMEs struggles with cashflow. The time of repayment takes time, 24% of SMEs have to wait 30 days or more to receive payment from their customers. But nearly half of SMEs (47%) have been made to wait between 30 and 90 days!

The biggest threat? Bad debt.

Last year 31% of SMEs have experienced bad debt. Every time an owner is waiting for repayment, there is the possibility they will never see the money. Of the SMEs that reported suffering a bad debt, over two fifths (44%) said it has affected their growth and/or profits.  Bad debt suspends development of the company and also hits daily business. The proportion of SMEs surveyed that suffered a bad debt that they were unable to recover has broadly remained the same (30% in 2019 versus 35% in 2017). In practice, this means that companies still have a problem with collecting money on time and don’t have money to pay for their current liabilities such as paying employees or suppliers. It is worth thinking about ways of securing financial liquidity and use factoring as additional security against unreliable contractors. It is also an excellent solution to secure financial liquidity.

Cashflow is one of the most important things in the company.  If we compare a company to a body, then cashflow is like blood circulation. Thanks to financial liquidity, it’s possible to develop company and also think about innovation. As Albert Einstein wrote to his son in 1930: “Life is like riding a bicycle. To keep your balance, you must keep moving.” That’s why the company’s owners must think ahead. The competition never sleeps. Overall, 85% of SMEs surveyed plan to invest in their business in 2019. Those in the US (92%) and Czech (90%) are most likely to invest, whilst those in the UK are least likely. In the UK, many have been deterred from investing while Brexit discussions continue.

External financing

Across the sample, 15% of SMEs are likely to apply for external finance in the next 12 months to secure their financial liquidity and have funds to finance new investments. Polish SMEs are most likely to apply (25%), while only 6% of German and Dutch SMEs say they are likely to apply.  Polish SMEs are most likely to believe that the economic situation in their own country and in the world is doing well, and that is why they look positively into the future.

Overall, one in three SMEs feel the availability of finance is excellent/good. But In 2019, one in five SMEs reported themselves as having been rejected for external finance, with SMEs in France (37%), and the Czech Republic (33%) experiencing the highest levels of rejection. Of those that have been rejected for external finance, the main reason cited was ‘poor credit rating/history’ (31%). Frequently it’s an insurmountable barrier for them. That’s why SMEs should consider factoring as a form of external financing.

Factoring companies use a different risk assessment model than banks: unlike traditional collateral, they focus on invoices and customers, not a mortgage. A company that wants to use factoring does not need to have significant assets. A factor will examine the business’s customers, invoice payment time, sales volume and development plans. On this basis, a financing decision is made. It is especially a good solution for entrepreneurs who want to develop their businesses.

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