In this piece, Jack Trowbridge from GapCap considers the options facing SME suppliers during times of uncertainty...
With the current political climate and the looming threat of a No Deal Brexit, there is a lot of concern about the future of SMEs.
The most obvious area of risk surrounds supply chains. The highest risk suppliers are those based in the EU, but suppliers in other parts of the world may also represent a risk as the impacts on non-EU and even UK based trade are not clearly known.
What are the risks associated with Brexit, and how can you mitigate them?
Whatever ends up happening, there are likely to be delays within your supply chain. This may be due to issues crossing borders or simply added paperwork. These delays could last for a while until technological solutions are implemented.
To manage this risk to your business expect that there will be increased lead times, and factor this into your planning. In the case of perishable goods, you may need to consider alternatives. Review your contracts with suppliers to identify who is responsible for dealing with delays caused at borders and who is taking on what risk. If appropriate, you may want to look into registering as an Authorised Economic Operator; this can ease issues at the border.
It is, as yet, unclear If there will be tariffs or duties imposed, but there are also the costs associated with longer delivery times and border delays. There is also the question of VAT since this is an EU tax there is no guarantee about what the government will decide to do about it. It is expected to remain, but the administration of it may become more difficult for a time.
If possible, you may need to ensure that there is space in your budget for a potential cost increase. You should also review any contracts with suppliers and make sure it is crystal clear who is responsible for paying duties and tariffs.
Following Brexit, the UK and The EU may decide to apply different trade restrictions. This could be a problem if the UK chooses to ban all imports from, for example, Iran, but the EU does not. You would need to ensure that your EU suppliers do not source any materials from the banned country because then their good would not be able to make it to you.
To mitigate this risk, you need to have a very clear map of the entirety of your supply chain. It is also worth reviewing your agreements with your suppliers to reduce this kind of risk.
We have all seen the impact on the exchange rate the Brexit has had, and it hasn’t even happened yet. It seems likely that sterling will continue to weaken and may be subject to wild fluctuations.
It will be hard to manage this risk by doing anything other than considering alternative UK based suppliers. Otherwise, you will need to factor in the potential impact of rising costs for overseas products.
Head of Partnerships, GapCap
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