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SMEs, Global Uncertainties, And Supply Chain Financing

sme global scf

Since the rise of the industrial revolution and globalisation in the 19th century, many businesses have looked into global trade as an opportunity to grow and strive in the ever-developing global economic landscape.

Fast forward to today, moving from local to global trade is still the goal of many Small and Medium Enterprises (SMEs) here in Singapore. But, unlike in the 19th century, global economies now have a lot of uncertainties that shake the foundation of business enterprises that don’t have a well-managed cash flow.

These uncertainties make it hard for SMEs to enter the global market out of fear that a sudden downturn can ruin their business and greatly hurt their revenues.

How Global Uncertainties Affect SME Growth

Global uncertainties, like the “Brexit”, the rise of e-commerce giants, and lower demand from China have made it hard for small and medium firms to know where the global trade landscape is heading.

These uncertainties can cause supply chain backlogs as global partners strap themselves in for an impending economic downturn in their territories. Others find barriers to entry harder to find with looming uncertainties that could potentially blow up in their faces.

According to an OECD discussion paper titled “Fostering greater SME participation in a globally integrated economy, SMEs face a considerable amount of costs when they enter international trade:

Engaging in international markets can be expensive and usually only the most productive firms can afford to do so (Melitz, 2003; Bernard et al., 2007). Lacking economies of scale, trading costs represent a higher share of SMEs’ exports – meaning that they are disproportionately affected by tariff and non-tariff barriers to trade (WTO, 2016a).

Because of the heavy cost that SMEs face when they enter the international scene, uncertain conditions make it hard for SMEs to take the leap. Thus reducing their opportunity to “scale up, accelerate innovation, facilitate spill-overs of technology and managerial know-how, broaden and deepen the skillset, and enhance productivity”

How Supply Chain Financing Helps

Looking at the bigger picture, the biggest problem of SMEs when entering the global market is keeping themselves financially stable to keep them afloat through the financial pitfalls of global economic uncertainties.

This problem can, however, be addressed through a Supply Chain Financing (SCF) program which helps companies keep cash flowing freely through the help of third-party funders that hasten payment and free up financial deadlocks.

SCF programs have become a global financial solution for better cash flow management, with major international banks reporting 30% to 40% annual growth rates in SCF programs, and SCF growth rates are expected to continue to grow.

According to the “Supply Chain Finance Fundamentals” report by PrimeReview:

“The health of a global supply chain isn’t just measured by revenue and profit. A more relevant indicator is how efficiently capital flows between buyers and suppliers. Slow moving capital, much like slow moving inventory, creates unnecessary costs and inefficiencies in a supply chain.”

Through Supply Chain Financing, the problem of cash flow management is addressed by increasing working capital, reducing supply chain risks, and allowing businesses to extend supplier payment terms and giving suppliers the option get paid early through third-party financers. This eases up working capital for both buyer and supplier, giving buyers more time to accumulate cash to pay their invoice without worrying their suppliers with delayed payments.

Having an SCF program in place can improve an SME’s cash flow statement and better help them manage cash inflows and outflows. As a result, it becomes easier to manage finances and strategise financial buffers for economic emergencies.

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Kenneth Tan

Kenneth Tan

Kenneth is a Marketer at Nufin Data, who works with Enterprises of all sizes to help them discover more working capital and competitive financing options. Learn how an effective Supply Chain Finance (SCF) program can benefit your organisation today by getting in touch with him at kenneth.tan@nufindata.com or by connecting via Linkedin at bit.ly/connectwithkenneth

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