How Is the Euro Economic Crisis Affecting Supply Chain Finance?

There is an on-going crisis in the Eurozone which is causing a great deal of problems for businesses in Europe. The fear of the potential collapse of the European single currency is causing turmoil in the countries that use the Euro, and also those that trade with these countries. The fallout is certainly not being escaped by the United Kingdom, as we have seen significant problems arise since the Eurozone crisis began.

One area that is being particularly affected by this crisis is supply chain finance. Supply chain finance is a term that refers to the management of finance within the supply chain, and the optimisation of this finance for a seller of goods. The idea behind this management is that the payments for goods are optimised so that businesses save the most amount of money and free up the most amount of capital.

The Eurozone crisis is having a significant effect on this as companies are needing to watch their cash flow more carefully. Some companies are finding that buyers are making payments late, and the suppliers are asking for payments early. All of this leads to a situation where companies are less willing to offer credit to each other and this results in a more inefficient market.

As with any credit situation, whether a company is going to be extended supply chain financing is going to depend on their companies stability and credit rating. The Eurozone crisis has meant that more businesses are at risk of collapsing and for this reason companies are hedging their bets and are not willing to extend as much finance – in case the company goes out of business and they are unable to get their money back.

The Eurozone crisis is therefore having a particular impact on small and medium-sized companies. Larger corporations are still seen as relatively stable as the chance of them going out of business is significantly lower. This is causing an increased gap in the market between the big players, and the small-time businesses, making it harder for them to compete.

Supply chain finance in Europe is something that should technically be easy to organise as there are free trade boundaries thanks to the laws of the European Union. However, financing has become anything but easy when the market fears that businesses could be close to collapse and funds could be unrecoverable.