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Three quarters of European banks believe that supply chain finance (SCF) in the region will continue to grow by between 10% and 30% each year in mature markets and 20-25% in emerging markets.

This represents a somewhat more cautious outlook compared to 2010’s opinion, a recent report on SCF from Demica outlines, but shows the enduring appeal of SCF despite slow economic recovery and concerns in the eurozone.

This growth will cover the next few years and be driven by developed economies such as the US and Europe, along with larger emerging economies including China and India.

A principal driver behind the growth in SCF has been an increased focus by companies and banks on maximising their working capital and reducing their supply chain risk to counteract the pressure caused by the financial crisis, the continuing poor economic growth and the sovereign debt crisis in Europe.

“Even though credit conditions have eased up slightly, many companies, especially SMEs, are still struggling to obtain bank financing in a lending market that continues to remain tight,” Phillip Kerle, CEO of Demica says.

In emerging economies in particular, access to liquidity is difficult and suppliers are reported to be concerned with keeping pace with buyers’ growth.

One challenge that suppliers have been facing is the late payment of invoices, especially in Eastern Europe, which is fuelling rising European trade credit insurance rates.

According to a report published by Atradius: “79.6% of respondents reported that B2B invoices in Eastern Europe are more likely to be paid late due to liquidity constraints of domestic customers rather than foreign customers, confirming the pressure of credit tightening in the local market.”

This is also true in the UK, where money owed to suppliers rose by 27% in the two years to the end of 2011, reaching £113.1bn.

But there are still challenges facing the development of SCF, the report adds, and bank financiers believe that legal and jurisdictional issues and access to technology platforms are all areas that need improvements, especially in emerging markets.