After nearly a year of delays, the UK will officially leave the European Union at the end of January. Chancellor Sajid Javid, however, has warned businesses that there will be no alignment with EU rules after the Brexit process is completed. This means that, while the country will face no further delays with regard to its official status, the rules governing how the UK will interact with the EU are still unclear.
The government will work out the details of the country’s trading relationship with the bloc over the course of the 11-month transition period, which starts on 1 February. Until then, businesses will continue to operate in accordance with EU rules. This provides business owners and investors with much-needed breathing space, finally allowing the UK economy to plan for the coming year. More importantly, it will provide businesses with an opportunity to recover and grow in preparation for a truly post-Brexit UK.
Brexit will go forward, but uncertainty remains
Businesses continue to be faced with uncertainty, however the threat of an unregulated “hard” Brexit has passed. If negotiations with the EU are unproductive, the transition period may be extended by a further one or two years, meaning that the sudden, drastic, and unmanaged changes accompanying a potential “no-deal” are no longer a real risk. However, it’s unclear what the UKs relationship with the EU will eventually look like.
Chancellor Javid has clearly stated that the UK would not be a “ruletaker”, and that it would be neither in the EU’s customs union, nor the single market. The government has indicated that it hopes, despite this, to secure an ambitious free trade deal by the end of the year. However, the prospect of reaching a free trade with the EU, without accepting EU rules, is likely to present extreme challenges.
The UK will continue to follow EU rules until the end of the transition period
Until the end of the transition period the UK will continue to operate under EU rules. At that point, businesses can expect to operate in a new environment. Specifically, the new relationship in 2021 is likely to involve new tariffs and quotas, and changes to the legal status of EU citizens working in the UK. The transition period itself, however, represents a stable period of 1-3 years during which businesses can pursue growth in predictable conditions.
Use supply chain finance to seize growth opportunities in a limited timeframe
After a stressful year of looming deadlines, all of which were missed, businesses now have an opportunity to recover and to grow. Whether the transition period turns out to be one or three years long, it offers businesses much-needed certainty. By taking advantage of financing tools like supply chain finance, even exhausted, cash-strapped businesses can quickly kick start their growth again to begin the process of establishing themselves in a post-Brexit Britain.
How it works
Businesses that don’t have access to sufficient working capital to increase their production capacities are limited in their options when it comes to growth. Usually they need to turn to debt or investors for support. However, after a tough year, they might not have access to the credit they need. Supply chain finance, however, doesn’t rely on debt. Instead, a financier extends payment to suppliers on the business’ behalf, and the business can then defer its own payment to the financier—extending their payment term by up to 90 days in the process. This gives the business the funds and the time it needs to accommodate new clients. In effect, the business’ growth can be used to pay for itself as long as the initial investment can be converted into new revenues within those 90 days. Even if it can’t, other alternative finance solutions, such as invoice financing, can be used to make up the difference.
For example, a manufacturer might use supply chain finance to purchase materials, and then process those into marketable products within 60 days. Once those are sold, however, the invoice the manufacturer issues to the customer might include its own 60 day payment term. In order to make payment to the financier on time, the manufacturer needs the funds within 90 days. To do that, it can then finance the outstanding customer invoice to receive payment up front. Invoice financing allows the business to give itself an advance, effectively allowing it to fully finance its production process.
After a tough 2019, many businesses won’t be prepared to take advantage of the opportunity that 2020 has brought with it. That doesn’t mean, though, that they won’t be able to do so. By learning to apply financing tools, such as supply chain and invoice finance, businesses can get growing again quickly this year, and equip themselves for the changes coming after the transition period.