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Manufacturers' predictions for 2019

EEF Executive Survey 2019

07.01.2019
Topic Manufacturers

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This is the eighth edition of our annual Executive Survey, manufacturers’ expectations for the year ahead, in partnership with AIG. Every year we take a look at companies’ expectations for growth – in their businesses, across the UK economy and globally – and their headline predictions for opportunities and challenges that lie ahead.

Though trending down from 2018, manufacturers remain mostly positive for 2019. However, our survey provides an early warning of some of the issues that could be behind the downward trend, and difficulties that could make 2019 more challenging than 2018. It’s no surprise that for 2019 Brexit is the driving force behind many of the risks and uncertainties that are worrying manufacturers. Whatever the outcome of Brexit, UK manufacturers will have to overcome its challenges and adapt to the UK’s post-Brexit trading relationship with the EU.

But 2019 is not all about Brexit, and several other dangers have been highlighted as well. For instance, the impact of cyberattacks continues to be on the radar for many manufacturers; however, since last year’s Executive Survey, many have increased their protective measures. A range of financial risks were also identified and manufacturers are focusing on several measures to help mitigate potential impacts of these risks.

AIG VIEWPOINT from Andrew Baynes, AIG Trade Credit

As manufacturers look ahead the challenges of Brexit and other trade tensions loom large, placing fears of a cashflow squeeze front of mind for some. By strengthening their credit management and bolstering with trade credit insurance manufacturers can better protect their revenues, unlock trade finance opportunities and navigate new markets.

EEF’s Executive Survey shows that risk dominates over opportunity for manufacturers. With a recent focus on the 4th industrial revolution it is noteworthy that disruptions due to cyberattack represent the most significant risk (outside of Brexit) at 63%, with a quarter of manufacturers planning to take action.

However, it is a sustained uncertain economic environment at home, coupled with 51% of manufacturers planning to expand their exports abroad to non-EU countries, which means risks associated with trade become immediate and centre stage.

Dealing with uncertainty 

How should manufacturers be responding? With 22% planning for a decrease in cashflow, and 55% regarding their accounts receivable as their most important asset, strengthening credit management must be a priority. Over a quarter (27%) state they will take action this year; we believe this should be focussed around:

  1. Pre-vetting of prospective clients by obtaining and maintaining information about their financial health
  2. Establishing expected payment behaviour and a well structured collections process
  3. Ensuring delayed payments are addressed by issuing automatic, escalating reminders on predetermined days in the payment cycle
  4. Having the right tools at hand to mitigate loss (collections or recoveries agencies, and insurance)

The Executive Survey highlights that 58% expressed concern about the risk of late payments or extended payment terms and 51% of manufacturers’ mentioned increased incidence of bad debt as a risk.

Solutions to help confidence

Late payments, as well as impairing cashflow in the short term, can provide an early warning sign that a buyer will default. Trade credit insurance can help mitigate the impact. By insuring their accounts receivable, manufacturers gain confidence that they will still be paid under commercial contracts if their customers default on monies owed. This helps ensure they have enough funds available to continue fulfilling orders and growing their business during potentially volatile times. The Executive Survey states that 37% have this insurance in place already with a further 15% planning to take action.

For companies with good credit management, AIG can offer a different type of solution - non-cancellable trade credit insurance under which there is a commitment to maintain credit coverage for future shipments to buyers, even if the buyer subsequently posts poor operating results. Likewise, coverage remains intact when a country or entire industry sector runs into trouble.

For example, the sports equipment manufacturer selling into UK retail and exporting internationally, who had a non-cancellable limit on one of their key buyers. The buyer’s risk situation deteriorated, but cover was not pulled and a claim was swiftly settled with the insured following the buyer’s insolvency.

AIG are not promoting trade with poor quality risk, but are offering certainty to policy holders that once a credit limit is established it will remain in place for the duration of the policy. It also enables policy-holders to stand by customers, ensuring their customer base remains intact and their sales recover quickly when the business environment improves. Trade credit insurance also helps companies to trade in higher margin, but higher risk and less familiar markets than they would normally be able to. 

By enabling firms to better optimise their accounts receivables, trade credit insurance also allows them to unlock trade finance.

EEF: The manufacturers' organisation

EEF is dedicated to the future of manufacturing. Everything we do is designed to help manufacturing businesses evolve, innovate and compete in a fast‑changing world. With our unique combination of business services, government representation and industry intelligence, no other organisation is better placed to provide the skills, knowledge and networks they need to thrive.

We work with the UK’s manufacturers from the largest to the smallest, to help them work better, compete harder and innovate faster. Because we understand manufacturers so well, policy-makers trust our advice and welcome our involvement in their deliberations.

We work with them to create policies that are in the best interests of manufacturing, that encourage a high growth industry and boost its ability to make a positive contribution to the UK’s real economy.

Our policy work delivers real business value for our members, giving us a unique insight into the way changing legislation will affect their business. This insight, complemented by intelligence gathered through our ongoing member research and networking programmes, informs our broad portfolio of services; services that unlock business potential by creating highly productive workplaces in which innovation, creativity and competitiveness can thrive.

www.eef.org.uk

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