This isn’t a generalization. It’s a fact supported by data from our Murky Waters of Overseas Manufacturing study. Our study found that 69% of manufacturers have used supply chain financing in the last 12 months and 66% expect to use it in the next 6 - 12 months. This suggests manufacturers are using various lines of credit to keep the lights on throughout the year.
Supply chain financing is certainly a lifeline that can help you weather uncertainty and it’s tempting to think that it can make your supply chain more resilient. But we’d argue against that claim. The more financing you secure, the higher your debt becomes. All it takes is a drop in customer orders and revenue and you may not have enough cash to pay back what you owe. When that happens, you could sink into default on your loans and damage your creditworthiness.
Of course, this doesn’t mean we don’t see value in supply chain financing. It can be a boon to grow your business and can sustain operations during times of economic uncertainty. But it’s about understanding when it’s helping and when it’s hurting your business growth. For example, taking out too much supply chain financing could make it tough for you to sell your business or merge with another business.
Before any deal can go through, potential buyers will check your business credit report to see how well you’re managing your finances, cash flow and payments. So, if your business credit report shows your cash flow is dwindling, your credit limit has dropped drastically in recent months and you have a high percentage of past due payments, it’s more than likely the deal will fall through. And from the buyer’s perspective, that’s understandable because they need to vet you and determine if their investment will deliver ROI.