New research commissioned by American International Group, Inc. (NYSE:AIG) and PrimeRevenue indicates that limited access to working capital finance and inflexible payment terms are having an adverse impact on UK business.
The YouGov poll of UK businesses that provide goods or services to large organisations found that 17 per cent of their revenue is currently tied up in invoices with non-standard payment terms, suggesting that around £29bn* is being withheld from UK plc. Over three quarters (77 per cent) of companies have been asked to accept longer payment terms, with 28 per cent saying the issue has increased in the past year.
Businesses reported that on average 20 per cent of their customers insist on terms longer than the norm. This can have a significant impact on business operations with respondents saying extended payments affect cash flow (55 per cent), require additional administration (33 per cent) and strain client relationships (29 per cent).
And the risk of not providing extended payment terms can be costly. One in five respondents (20 per cent) report that they have lost business after denying customers longer payment terms.
With these business risks in mind AIG and Prime Revenue today launched a new supply chain finance offering for mid-market, non-investment grade companies that could free up significant funding for UK businesses.
Supply Chain Finance from PrimeRevenue and AIG is the product of a partnership between a leading global insurer and the largest working capital finance platform in the world. The solution provides funds that enable suppliers to take early payment less a small discount, while enabling buyers to standardise and potentially lengthen their payment terms. This provides low cost access to working capital on both sides of the transaction.
Until now, supply chain finance platforms have been limited to supporting the largest, investment grade businesses. Supply Chain Finance from PrimeRevenue and AIG is able to cater to the thousands of mid-market, non-investment grade companies, by providing financing with the credit risk insured by AIG’s market-leading trade credit insurance.
“The inability to get access to low cost working capital can affect our clients and is holding back thousands of very well run businesses. Ultimately, it can have a significant impact on the economy as a whole,” commented Neil Ross, Regional Manager EMEA Trade Credit, AIG.
Ross continued, “Leading publicly-rated companies can borrow quickly and with favourable terms to take advantage of emergent market opportunities. Now, by combining PrimeRevenue’s market-leading platform with AIG’s Trade Credit underwriting experience we’re able to extend this advantage to many more businesses.”
The ongoing financing requirement will be organised by PrimeRevenue Capital Management, by providing investment access to banks as well as non-bank entities such as insurance companies, pension funds, hedge funds and capital market investors looking for stable returns. The offering will be rolled out to other European countries and the United States in coming months.
Rob Barnes, Founder, PrimeRevenue, said: “PrimeRevenue has been serving the supply chain finance market for over a decade, with over $120 billion flowing through our system in the last 12 months. We have seen first-hand the benefits that this approach can bring to businesses through unlocking cash flow and working capital to fund day-to-day operations and investment for the future. Our partnership with AIG means that these benefits are now available to a broader market of buyers and their suppliers.”