Worrying survey results Critical liquidity shortages in metal and electrical businesses

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In 2023, every sixth company in the metal and electrical industry experienced liquidity shortages. The main reasons for this were high purchase prices for raw materials and preliminary products as well as a decrease in demand. Factoring is a popular solution for securing liquidity.

In 2023, three out of five metal and electrical companies in Germany (60.5 percent) experienced liquidity bottlenecks. This was the result of a survey by Close Brothers Factoring GmbH from Mainz among 200 companies in the metal and electrical industry. This was a significant improvement compared to 2022, when as many as 99 percent of respondents experienced liquidity bottlenecks. However, the numbers from 2023 are still alarmingly high. Also, the number of companies experiencing very critical bottlenecks increased from 9 percent to 17 percent. In addition, in 2023, 27 percent of all companies faced what were described as „rather critical“ liquidity bottlenecks.

There were many reasons for the liquidity bottlenecks:

• High purchase prices for raw materials and intermediate products (26.5 percent)

• Sales decline due to falling demand (25 percent)

• High energy prices (20.5 percent)

• Supply bottlenecks and payment defaults (each 20 percent)

• High transportation costs (17.5 percent)

Payment defaults play a major role in liquidity shortages. This is emphasized by the fact that about two-thirds of the companies (68.5 percent) notice more cases than in 2022. Payment delays were also experienced by nearly half of the respondents (44 percent). Only 7.5 percent of the survey participants were completely spared from defaults and delays.

Additional measures to ensure liquidity

To ensure or improve their own liquidity, just under two-thirds of the surveyed M&E companies (64.5 percent) resorted to additional financing solutions or service providers. Loans from credit institutions (39.5 percent) were the most popular. About one third each chose sale-and-lease or sale-and-rent-back solutions (35 percent) and factoring (33.5 percent) to secure liquidity. About a quarter of survey participants relied on lawyers and collection services (26.5 percent) and the sale of assets to dealers or other users (24 percent).

"Given the numerous challenges, ensuring their liquidity was once again a huge issue for M&E companies last year," says Detlef Küßner, Managing Director of Close Brothers Factoring GmbH. "Factoring has been one of the most popular solutions for ensuring solvency for years, especially as it also increases the equity ratio and loans can be taken out on more favourable terms."

Factoring can offer advantages to companies with growing or steady sales. By regularly selling receivables to a service provider, according to Close Brothers Factoring, one's own liquidity can be secured independently and reliably. Additionally, the equity ratio remains at a good level. With regular, predictable incoming payments, companies can also purchase larger quantities of goods with shorter payment terms under better conditions. Since the financial service provider pays all receivables directly and promptly, longer payment terms for customers are also possible - an additional, often decisive, sales argument. In addition, the risk of default is completely transferred to the factor by selling the receivables.