Tariffs and terms…weathering the storm
In today’s ever-changing global markets, UK companies are facing increasing pressure on both margins and working capital, driven by tariffs and terms. The current volatility around tariffs is encouraging both suppliers and buyers to review their payment terms, in turn causing a knock-on effect on working capital.
This trend, combined with the nuances of Incoterms governing the transfer of goods in international trade, is shaping how UK companies manage liquidity, supply chain risk, and their own financial health. With suppliers tightening credit terms and demanding faster payments to mitigate their own risks, buyers are seeing a negative impact on working capital. Conversely, the same companies are often faced with extended payment terms from their own customers, either to meet margin hurdles or to secure contracts.
Ultimately, these extended trade receivables tie up valuable cash that would otherwise be reinvested into operations and can present a real risk in the event of non-payment or potential buyer failure. The resulting pressure across both payables and receivables stretches the cash conversion cycle, giving business owners a severe liquidity headache.
In addition, for those companies trading cross-border, Incoterms 2020 influence another critical aspect of trade: both risk and responsibility. Incoterms define the contractual party responsible for transportation, insurance, import/export duties, and when the risk of loss or damage passes from the seller to the buyer. Title to the goods, on the other hand, is a separate matter, as this falls under the contract of supply.
Acknowledging this separation between risk and title is critical for accounting, insurance, and legal purposes. Companies need clarity on when they can recognise revenue, when to insure across their trade cycle, and when to record inventory on their books. Misalignment between Incoterms and contractual title clauses can lead to disputes, especially in cases of damage, theft, or non-payment.
De-risking this working capital puzzle is certainly something Forward CF recommends reviewing in today’s climate. The specialist insurance market has more capacity than ever to deliver bespoke protection against potential losses in the event of insolvency or protracted default (i.e. the buyer’s inability to pay their invoice). Such surety can be applied to all customers, key accounts, or even one-off contracts. The scope of extended cover can also include pre-shipment, work in progress (costs incurred in manufacturing or sourcing specific goods), and bound contract cover.
Insurers can also consider a 60-day notice period in the event of cover withdrawal, providing a clearer runway of certainty for the insured counterparty.
Whilst insurance often has the “cost vs benefit” stigma attached, many businesses’ largest asset pool (i.e. inventory, WIP, or trade receivables) remains uninsured, and therefore exposed to unexpected loss.
Outside of the traditional UK debt financiers, Forward CF has access to a number of both specialist and private credit funds providing enhanced liquidity to UK SMEs. These lenders remain extremely flexible in funding investment, growth, and acquisition, providing business owners with surety around their cash flow.
As the storm clouds gather, Forward CF remains on full alert to help business owners navigate the debt market and secure the right funding partner.