Given the scale and importance of the manufacturing sector to the UK, it’s vital that those businesses that are part of it are as healthy as possible. With Brexit on the horizon, and no certainty about what the build-up to it will look like for manufacturing businesses, both in the region and nationally, those that have optimised their business processes will be more resilient in the long-term. A big part of that is ensuring they are able to maintain a healthy cashflow.
Cashflow is the life blood of all businesses and the primary indicator of business health. It is generally acknowledged as the single most pressing concern for most small and medium-sized businesses, although even the largest organisations emphasise the importance of cashflow - most businesses can survive several periods of making a loss, but they can only run out of cash once.
A major factor in how much cashflow you have available are your DSOs (Days Sales Outstanding), which can have a huge impact on your business. It’s vital you understand how DSOs affect your daily operations and make sure you keep track to ensure they do not go too high.
Manufacturing matters to the UK
According to a recent report from the Office for National Statistics, the UK’s industrial sector has increased by 1.4% a year since 1948. This growth was attributed to a higher quality, more skilled workforce; a shift in production from low to high productivity goods; improvements in automation and technology; increased investment in research and development and a more integrated global economy.
The UK manufacturing sector plays an incredibly important role in UK plc, extending to around a quarter of the economy. It accounts for 44 per cent of total exports, sells £546 billion of products at home and abroad in one year and is responsible for 2.6 million jobs – more than the financial services sector.
From economic prosperity and employment to research and design, the manufacturing sector is central to the UK’s economy.
DSO comparison calculator
Our Debt team has developed an analytical tool that allows you to make a calculation to compare your DSOs to other companies in the manufacturing sector, based on the latest Companies House data. This factors in the size and the sector of your business to determine a more effective benchmark.
A typical analysis of a manufacturing company turning over £10 million shows their DSOs to be 11 days higher than the sector average. To put this into figures, we believe their working capital can be improved by over £390,000. Our analysis is based on data from turnover, trade debtors and industry.
Calculate and find out how you compare to other businesses in your sector by trying out our DSO Comparison calculator now.
Reducing DSOs in your business through sound debtor management can help improve your cashflow and ultimately the growth and success of your business. Our Debt team have been helping clients for many years to reduce DSOs and improve cashflow. Making small changes to credit control procedures and having a strategic, bespoke solution to your debt recovery can mean an advantage over your competitors.
If you’d like to find out more about how our Debt team can help you with debtor management, you can contact our team on 0113 336 3422 or alternatively via email. They would be delighted to talk to you, or your colleagues in the finance team, on a no obligation basis.
Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.