As Europe and the UK rebuild defence capacity, working capital solutions, alongside supply chain, receivables and export finance, are becoming critical enablers of industrial resilience and programme delivery, writes Enrique Rico, global head of trade and working capital solutions at Santander CIB.
For defence manufacturers, the central question has changed. It is no longer only whether governments will spend more, or which capabilities will be prioritised. It is whether industry can convert those commitments into delivered capability at the speed now required. That makes liquidity a strategic issue.
Defence policy across Europe and the UK is entering a new phase, pointing to a structural shift in demand, not a short-term procurement cycle.
Procurement pipelines are becoming larger and more politically significant, with renewed focus on air defence, naval programmes, land systems, cyber, space and surveillance. That creates opportunity for prime contractors and specialist suppliers. It also creates pressure.
Defence programmes are long duration by nature. They require engineering intensity, certified components, scarce materials, specialist labour and extensive supplier coordination. A contract may provide visibility, but visibility is not the same as liquidity.
This is why working capital is moving from the treasury agenda to the strategic agenda. Contractors must often mobilise production, secure inputs and coordinate suppliers long before cash is fully received. Milestone-based payments can be appropriate for public buyers, but often leave industry carrying liquidity requirements through the life of a programme.
The challenge is felt across the chain. A prime contractor may have strong backlog and a sovereign buyer, but still face a mismatch between delivery obligations and cash conversion. A tier 1 supplier may need to increase capacity before invoices are due, while a tier 2 supplier may be technically critical but less able to absorb delays. In defence, a liquidity constraint at one point can become a delivery constraint for the whole programme.
Industrial capacity, therefore, is not only a manufacturing challenge. It is also a financing challenge.
Defence resilience is still about production lines, sovereign capability, export controls and procurement policy. Those remain essential. But the next layer is financial resilience: the ability of companies across the ecosystem to fund delivery, manage receivables, secure critical inputs, preserve supplier stability and absorb volatility without slowing execution.
Financing the defence industrial base
Working capital solutions are becoming strategically important because they connect financing to defence programme realities. The task is to align liquidity with contract milestones, supplier requirements, inventory needs and delivery schedules so financial constraints do not interrupt industrial momentum.
Supply chain finance has a particularly important role to play. In defence, supplier stability is part of delivery assurance. Many critical suppliers are highly specialised, and replacing them can be difficult. Well-structured supply chain finance can give suppliers access to liquidity linked to stronger buyers or programme flows. For buyers, it can strengthen critical relationships, improve visibility and reduce the risk of liquidity pressure becoming an operational bottleneck. In this context, supply chain finance is not only a payables capability. It is part of the infrastructure that supports continuity.
“The next phase of defence investment will be measured not only by budget announcements or contract awards, but by delivery.”
Enrique Rico, Santander CIB
Receivables finance is equally important, particularly for prime contractors working with Ministries of Defence and other public sector buyers. As governments manage budget constraints while trying to accelerate defence readiness, longer or more flexible payment profiles may become part of the procurement equation. Receivables finance can help prime contractors accommodate those payment terms without absorbing the full liquidity burden themselves.
That distinction matters. Receivables finance is not only a way to accelerate cash conversion. In defence, it can also support commercial flexibility between industry and public buyers. It gives contractors greater room to align with sovereign budget cycles, while preserving their ability to fund production, invest in capacity and support the supplier base. Used well, it can help turn public sector affordability constraints into manageable programme structures rather than delivery bottlenecks.
Inventory management is another increasingly important part of the discussion. Defence production depends on critical raw materials, specialist components and long-lead items that are exposed to geopolitical disruption, export controls, logistics delays and supplier concentration. Holding more inventory can strengthen resilience, but it also ties up cash and affects working capital metrics.
Inventory financing solutions can help address that trade-off. By supporting the financing and management of strategic stocks, they can allow companies to secure critical inputs without placing the full burden on their balance sheet at the wrong point in the cycle. This matters because delays in a single component can affect an entire platform or programme. Liquidity linked to inventory is therefore about protecting production continuity and reducing vulnerability to supply shocks.
Export finance also has a distinct role in this environment. As defence procurement becomes more international, financing is increasingly part of how exporters compete for large sovereign mandates, particularly where contracts involve allied governments, local content requirements and long delivery horizons. Export credit agencies and commercial banks can help mobilise capacity around these cross-border programmes, supporting exporters while giving public sector buyers greater visibility over long-term funding commitments. In that context, export finance helps connect procurement policy, industrial partnership and cross-border execution.
The most effective financing strategies will not rely on one capability alone. Defence companies need supply chain finance to support suppliers, receivables finance to accommodate public sector payment cycles, inventory solutions to secure critical inputs, export finance to support cross-border delivery, and broader working capital solutions to connect procurement, production and treasury decisions.
Turning spending into capability
This is where the European dimension matters. Strengthening defence capability requires more than increased public spending. It requires mechanisms that allow that spending to move through the industrial base effectively. Without that, budgets risk becoming commitments on paper rather than deployable capability in the field.
Recent public-private initiatives illustrate this structural shift. The collaboration between the European Investment Bank and Santander, designed to mobilise around €900mn of financing for European companies in strategic sectors, including security and defence, clean technologies and digital infrastructure, shows how public and financial institutions are working together to strengthen Europe’s industrial base. Its relevance lies not only in the amount involved, but also in the signal that supply chain finance and working capital are now part of Europe’s strategic autonomy agenda.
That matters because defence readiness depends on thousands of companies, not only prime contractors: component manufacturers, engineering firms, technology providers, logistics companies and specialist SMEs several layers below the main contract. If those companies cannot access liquidity on suitable terms, the industrial system becomes less responsive, even when demand is clear.
For banks, this moves the relationship with defence clients from individual transactions to programme-level liquidity planning.
At Santander, we see trade and working capital solutions in defence as helping clients connect programme commitments with the liquidity required to deliver them, combining sector understanding, cross-border execution and working capital expertise in a way that reflects the realities of defence procurement.
The next phase of defence investment will be measured not only by budget announcements or contract awards, but by delivery. In that sense, working capital is becoming a defence capability in its own right. It is the financial layer that allows industrial capacity to move, suppliers to perform and long-term programmes to remain on track. As Europe and the UK rebuild readiness, institutions that can provide that layer thoughtfully and at scale will play an important role in turning defence ambition into operational resilience.
