Manufacturing: under the microscope
Danger of default
Shouldering the burden
When firms default on these facilities the lender must follow its usual recovery process, but there are concerns that they may be quicker to foreclose than usual because they can claim up to 80% of all amounts due from the government. So, any business that can’t meet its scheduled repayments would be well advised to seek specialist advice and engage with their lender at the earliest opportunity. Defaulting could damage your credit rating or if a personal guarantee was given, the business owner or directors could be held personally liable. In the worst case, it could lead to insolvency. Despite this, it would seem that most manufacturers do have stakeholder support at this time. The vast majority (93%) said they expect to seek an increase in facilities provided by existing shareholders and/or lenders during the next 12 months. While a fifth (20%) will turn to shareholders for support, twice as many (39%) will approach lenders for help and a third (33%) will ask both lenders and shareholders for extra assistance asking for facilities to be increased by an average of 21%.
This comes after 99% of firms said they had taken steps in the past 12 months to preserve or improve their cash position, including deferring VAT and tax payments (36%) and making redundancies (33%) – with those reducing their workforces cutting one in four jobs on average. Considering that there are around 7,300 manufacturing businesses in the UK with more than 50 employees 2 , this would represent the loss of around 168,000 jobs in total if applied across the board. Further actions included changes to employees’ contracts or working hours (32%), making deals with landlords or not paying rent (30%), negotiating extended terms with suppliers (30%), putting up prices (25%) and not paying pension contributions (25%). Those that had been forced to pass cost increases on to customers had raised their prices by an average 26% - more than double the rate of inflation at the time of writing. Given the context of rising energy costs, import tariffs and material shortages, sometimes putting up prices is unavoidable. And, while some suppliers will have more leverage than others, it’s important to communicate why you’re doing this, and if you can, to give advance notice, in order to maintain good customer relationships.
What steps have you taken in the past 12 months to preserve or improve your cash position?
36%
33%
32%
30%
VAT and tax deferrals
Permanent reduction in headcount
Changes in contracts/ working hours
Compromises/ non-payment of rent
30%
25%
25% 1%
Extended terms with suppliers
Increased prices for customers/distributors
Non-payment of pension contributions
No steps taken
*Results based on responses from 100 senior decision makers from heavy manufacturing businesses, who each selected all steps that applied to their business.
frpadvisory.com
4
Made with FlippingBook - professional solution for displaying marketing and sales documents online