THE FINANCE SOLUTION
An AlternAtive form of lending to businesses is on the rise
As the uK economy recovers and business confidence returns, I am definitely seeing an increase in business investment and requests for appropriate funding. In the first half of 2014 I have seen good growth in net lending from NatWest to SMEs across sussex and i hope that this is replicated at the other banks. Economic recovery does though bring its own risks and it is a well told tale that more businesses fail coming out of recession than in it. A key risk is ‘over trading’ driven by a desire to grow the order book quickly without recognising the impact on working capital which can become constrained depending on the working capital cycle of a business. Appropriate working capital funding can be a good answer and during my time in banking the prominence and flexibility of receivables or invoice finance has changed dramatically. With the UK economic recovery continuing, now seems a good time to look at invoice finance in a little more detail. The “great recession” may almost be over according to The National Institute of Economic and Social Research (NIESR), with the economy on the verge of resuming its pre-crisis power. However, recent research undertaken by RBS Invoice Finance reveals that many UK firms are still struggling with late payment and cash flow management. 20│ Issue 3 � 2014
The findings show that 68% of those surveyed were seeking payment within 44 days but, in reality, only 34% are actually getting paid within this timescale. Such results suggest that there still remains a large gap between contracted terms and real payment time. Even if payment terms are extended to within 60 days, there are still 13% that push payment beyond those terms. Having access to sufficient working capital is vital for companies operating in a recovering economy. It can have a significant effect on an organisation’s success; providing the liquidity needed to grow, adapt and make acquisitions or to simply help to manage day-to-day trading requirements. The answer to this problem? Predictably there is no simple resolution, however, survey results showed there are two standout choices for businesses suffering such fate. 94% of those surveyed by RBS Invoice Finance recognised that Invoice Finance can help businesses grow and support cash management, while 79% of UK businesses have already spoken to their business advisor about invoice Finance solutions. Invoice finance can solve the problems of slow paying customers, shor tage of working capital and protection against bad debts. Simply, it involves a business assigning its customer sales invoices to a finance provider that can
typically advance up to 90% of the sales value; as they keep close to the asset and establish and protect its value. Invoice finance can also be used as a flexible way to raise funds. Invoice finance as a finance solution allows a business to immediately realise the cash benefit of its sales. Given that the level of finance available is directly propor tional to sales, funding should automatically increase as a business expands. This flexibility links into the attractiveness of invoice finance, which is becoming more prevalent in today’s market. Another answer for growing businesses may be Asset Based Lending. ABL releases the value tied up in such assets within businesses, freeing it up in the form of a cash advance that can be put to work in the business. Designed for businesses with an annual turnover in excess of £10 million, ABL enables businesses to borrow against the value of their trade receivables and inventory to finance the working capital they need.
- Finance|funding -
Over the coming issues, Robert Clare, NatWest Regional Director for Sussex and Surrey & South West London, will present a comprehensive guide to sourcing funds for businesses of all sizes.