News & Events

Honda ripple effects show the need for SME resilience

11-02-2019|Ultimate Finance

The news this week that Honda is to close its Swindon plant in 2021 is a terrible blow to the 3,500 people that work there and the families they support.

But it will also have significant ripple effects for a host of other businesses, locally and further afield. Some small businesses that currently benefit from spending by Honda workers will see that all but disappear, while suppliers around the country providing parts or services to the plant could be hit hard too.

This just underlines the need for businesses to build their resilience and, as far as they can, look to shield themselves against unexpected losses of trade. With the economy facing uncertain times, this is more important now than ever.

We saw the impact of a larger, but similar scenario last year when the collapse of construction and support services giant Carillion affected not only the 20,000 individuals that worked for the company in the UK, but an extended chain of suppliers – many of them SMEs. Most of these businesses will have received only a fraction of what they were owed.

So how can SMEs become more resilient?

One common issue with small businesses is that their revenues can become concentrated with just a small handful of clients. This is fine as long as those businesses are in good health – but if they get into difficulties, there can be obvious knock-on effects.

It’s often a tough market for enterprises of any size and landing a big contract will understandably spark a period of celebration and optimism. But at the same time, it’s vital to keep looking for other clients too and try to diversify your income profile as far as you can.

If your business relies on just a few big contracts worth a significant percentage of your income, we recommend that you think carefully around the following issues:

  • Analyse your cashflow situation. What would the implications be if that big contract dried up or the client couldn’t pay you what they owe? Do you have enough income from other customers to maintain your business?
  • Manage your debtor risk. Big companies – like Carillion – aren’t necessarily any safer to do business with than small ones. You need to do your due diligence around your clients and see whether any are a credit risk
  • Consider credit insurance. This protects you against losses should a customer be unable to pay you due to insolvency
  • Keep channels open to new business. Always be ready to consider taking on new clients so as to reduce your dependence on a small number of contracts
  • Look at your funding options. Do you need to have a discussion with your funding provider about supporting your business should difficulties arise?

The good news is that we have a strong and active finance sector in the UK. Lenders such as Ultimate Finance are ready to support viable businesses and there are many funding options available.

We offer a range of flexible products to support both business growth and those to ease you through testing times. Knowing that recovering overdue money is a constant challenge and instead of having to wait somewhere between 30 or even 90 days for payment, our Invoice Finance facility allows companies to gain access to money they’re owed, from their outstanding sales ledger. We can also facilitate debtor protection, an insurance policy that if your debtors go bankrupt you can still recover the majority of the money that is owed to you.

SMEs need to build their resilience to withstand unexpected shocks. We are here to provide the flexible funding facilities that can help you do that.

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If you would like to talk to us about any funding needs, call us on 0800 121 7757, register as an Introducer or request a quote for your business today