17.02.2016

Quarter century making the building blocks of electronics

School science lessons explain that the atom is the smallest viable component of the physical world. Those in the more practical world of electronics would not disagree but take as their own ‘lowest common denominator’ the printed circuit board (PCB) which lies at the heart of every piece of technology from the humble washing machine to the most sophisticated supercomputer.

Like the atoms from the Periodic Table, no two PCB designs are quite the same. The development and manufacturing of printed circuit boards has therefore developed over the years into a huge industry worldwide. Given the precision and specialisation required to create a PCB, these processes are usually handled by subcontractors to the ultimate equipment manufacturers. Many of these suppliers are SMEs which frequently encounter the problems of funding the orders they receive from high profile IT purchasers.

British developer secures major order to supply IT company

The recent experience of one PCB producer in the English Midlands illustrates how important access to funding for orders has become. The company, which has been plying its trade in PCB development for a quarter of a century, had previously secured third party finance to enlarge its operations. What was beyond the scope of that funding was covering the cost of supplying PCBs to meet new orders.

At various times in its history, the company had chosen to manufacture its board in-house and in China, the decisions based on cost, batch size and time to delivery. For a recent contract with one internationally-renowned equipment manufacturer, its management opted for production in China to secure the lowest costs.

While there was an agreement in place for invoices raised by the UK company to be discounted confidentially when the boards had been supplied to the purchaser, there remained the question of financing the stages leading up to that point. In this instance, production of the PCBs in China and their carriage to the equipment manufacturer involved making a 30% initial payment with the remainder falling due before the goods are released for shipment.

Having collaborated with Trade & Export Finance in similar situations, the organisation which had made a development loan to the PCB specialist introduced the two companies. TAEFL identified the requirements and created a solution which would work in the circumstances where the invoice discounting company had already taken a charge over its client.

Specialist finance company brought in to fund orders

UK EXIM Finance, a specialist finance partner of TAEFL, was brought into the picture. It was able to secure trade insurance on the PCB producer to a limit of £180,000; an amount sufficient to fund the manufacturing in China. As is customary in such situations, UK EXIM Finance retains title over the boards being produced until funds are released by the invoice discount company as stock is delivered to the IT manufacturer.

Seen in context, TAEFL and UK EXIM Finance play an important role in allowing a UK company with a solid commercial record to complete an order cost-effectively. If the £180,000 had not been available, would the deal have gone ahead? Given the PCB manufacturer’s history of building boards in the UK, the order would not have been lost. But by being able to produce them at a significantly lower cost in China, the company’s margins are higher. Everyone benefits along the line.

 

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