Factoring blog for news and advice

In fact, the ABFA states that the smaller business now has to wait a week longer than it did before the economic crash, and that the relationship between big business and smaller suppliers has become even more unbalanced since the downturn.

ABFA members provide around £17.5 billion of invoice finance to 20,000 UK based small businesses and the trend is growing. Invoice finance is playing an ever increasing role in helping SMEs manage cash flow in the face of the squeeze, often from both their suppliers and customers.

Invoice factoring was introduced into the UK around 40 years ago now, but with high street banks restricting financing to small businesses the trend in invoice finance has skyrocketed as more SME seek to release funds tied up in invoices that are paying paid on longer terms by an increasing number of debtors.

Running a small business is challenging. You don't always have access to the cash flow you need to grow the business. Often just getting invoices paid by customers on time to make payroll is a challenge, let alone rolling out new products and keeping up with (or preferably leading) the competition.

Here we provide some quick fire tips on how to manage your small business finances to maximum effect.

Most businesses fail because they run out of money not because they do not have enough orders or sales.

Cash flow needs to be monitored  on a regular basis. You should calculate what needs to be paid at the beginning of the month and then ensure you have sufficient customer payments to meet all your payments. You will now know fairly quickly if you have a shortfall and will then be in a position to discuss the situation with your suppliers if you have to delay a payment. A supplier who is advised that there is a delay in payment will be much more supportive if they are advised in advance rather than the last minute.

A good accountant can provide sound advice on your business planning and management. Don't just look to them for your tax affairs management. Accountants work across a range of businesses, so have great insights when it comes to a number of issues and challenges.

It would be worthwhile asking your account about what is an acceptable level of communication in a month for the fees they charge you, before you send them a deluge of questions every day.

Seeking out a business finance adviser, such as Hugh Craen, or a business mentor can also prove very fruitful. External advisers are not swayed by internal politics and can provide your a clear and balanced judgement on important decisions.

A good relationship with both of these parties will be a great advantage when times are both good and bad. When times are good you can discuss new product ideas before the competition  gets the chance, as you have built a relationship that means the door is always open. When times are bad there is always scope to discuss longer or shorter payment terms, changes in products to reduce costs or increase margins.

These are just a few examples, each business is different, it's up to you to find out what a strong  business relationship really means. 

Not only is this sensible for tax purposes (which we won't go into here), but month to month you can review spending and identify where you may be able to reduce costs or increase spending on items that have a positive impact on cash flow and profitability.

For example, you may find reducing spend on items such as travel, because you can manage more meeting online/telephone, saves a considerable sum of money and time.  However, to do this well you need to improve your computers or phones. Making an investment can often pay off, but you need to know what the costs and savings you are to make a quantified judgement.

In order to avoid bad debts ensure you have a sound credit control policy. Use a credit agency such as Creditsafe to investigate the credit worthiness of potential customers and set a limit on their account.  Once a limit is set monitor the payment performance of your customers and their credit rating. The limit can then be increased or reduced according to their payment performance and credit limit recommended by the credit agency.

You will find that your suppliers will set credit limits on your business so this is not something that will surprise or upset your customers.  A sound credit policy will also ensure that your business will be more attractive to any invoice finance should you seek a funding facility.

Earlier this month The Queen's Speech announced new measures to help small business owners and directors better manage finance, employment and invoice payment.

Cutting the bureaucracy to help SME businesses access finance will be a key new legislation.  'Legislation will be introduced to help make the United Kingdom the most attractive place to start, finance and grow a business.' Said The Queen.

As part of this, banks that decline credit to business will be made to refer the business to more suitable lenders who would be open to discussing credit options. This comes at a time when their is considerable increase in alternative lending solutions, from the likes of the new wave peer-to-peer business lending platforms, through to the more established Invoice Finance and Factoring companies.

Invoice Finance is playing a stronger roll in the UK market, and not just during the recession. As business comes out of the downturn, many are seeking to grow and require steady cash flow and capital for expansion.

Invoice Finance and Factoring provides businesses with a sound means to access money owed through invoices raised. So the ability for SMEs, who are often working to 90 day (plus, in some cases) terms, means that access to cash for certain invoices is a considerable benefit when dealing with day-to-day cash flow and payroll etc.

Ultimately, the fact that the more recognised high street banks will no longer be able to hold back small business, as they will have to refer to more suitable lenders, means that SMEs will be able to access the cash and credit required to manage sustainable growth, without a detrimental affect and adverse risk.

If you are seeking more information on invoice finance, why not look at our top tips for presenting your business to Factoring companies.

The UK's small businesses are fearful of growth and expansion says a recent article in the Telegraph. Recent research shows that 96% of SMEs are 'content with growth, but targets set for 2020 to double exports, set by the Chancellor George Osborne, may not be in line with SME's goals.

Pressure on cash flow derived from tight credit and lending by the high-street banks to SMEs during the recession and even now, has created an environment for risk aversion and not taking a business to the next level. 84pc of those polled were not prepared to take on more debt to expand and only 23pc said they would consider using alternative forms of funding.

Factoring can provide considerable benefits when it comes to stabilising cash flow for growth with our increasing long-term debt holding. See here for our top tips on how to get the best deal with factoring companies.

See more at http://www.telegraph.co.uk/finance/yourbusiness/10441656/British-SMEs-reluctant-to-grow.html

The founder of fund manager Artemis is launching a new business to revolutionise financing for SMEs.

URICA is the brainchild of Lindsay Whitelaw, who has developed a new software platform that allows medium-sized firms to invite their suppliers to cash in their invoices early, removing the strain of late payments.

With URICA, the supplier can get paid a single day after invoicing, while the customer gets up to 75 days — or 90 days for an international client — to settle with URICA. The supplier agrees a discount on the invoice for this service, typically £85 to £250 on a £10,000 invoice.

This yet another provider coming to the market and this model is similar to that provided by Market Invoice and Platform Black and shows that there some exciting and innovative financing opportunities aimed at the SME sector.

To find out more about URICA or other factoring companies why not have a chat with our MD Hugh Craen.

The Asset Based Finance Association has today announced its strongest set of quarterly figures since the recession hit. The new figures (quarter four, October – December 2013) show both the highest ever quarterly funding balance and record annual sales turnover for companies using asset based finance.

Total funding advances to clients has now hit £18.3 bn, the highest quarterly balance ever. In December 2009 this balance was £13.9 bn, but since then it has grown steadily most quarters to now hit over £18 bn just four years later, an aggregate growth of some 32 per cent. The balance has grown 11 per cent in the past year alone and 3.5 per cent in just the last quarter.

Matching this record breaking growth is the sales turnover from companies using asset based finance. Total client sales for 2013 have reached over £275 bn, a growth of 10 per cent year-on-year. In 2010 the total turnover figure was £211 bn; this shows a cumulative current growth of 30 per cent in three years, underlining just how much asset based finance has supported UK and Irish firms with their sales growth since the financial crisis.

The quarterly sales figure of £72.7 bn is also a record high, pipping last quarter’s figure by over £1 bn and it is only the second time this has been over the £70 bn mark for a single quarter. The export figures for both factoring and invoice discounting are also showing robust growth, with year-on-year increases of 18 per cent and 12 per cent respectively. This indicates that UK and Irish firms are successfully working hard to exploit sales opportunities worldwide that complement the economic recovery currently underway.

Apart from financing growth opportunities, the demand for asset based finance is also being driven for working capital needs. A new report from commercial payment system Sage Pay sees small and medium sized businesses (SMEs) being owed a staggering £55 bn in unpaid invoices. This is even after the Government warned large corporations to make payments on time, but the problem is continuing, with two thirds of firms spending weeks attempting to secure payment for bills. This all underlines just how important factoring is to SMEs, allowing them to focus on actually running a business rather than chasing up unpaid invoices.

Whilst the Banks appear to be less enthusiastic in lending to the SME market the invoice finance sector continues to support the SME sector. The banking sector in the UK is concentrated in a handful of companies whereas there over 30 invoice finance companies offering both choice and finance across a number of industry sectors.

Findmeafactor has relationships with all the invoice finance companies and can ensure that a facility can be found for virtually any prospect.

The bank, which has an invoice finance operation in Manchester, has secured the funding from institutional investors Toscafund and Lansdowne Partners.

It is understood Lansdowne Partners has paid GBP10 million for around 2pc while Toscafund invested GBP30 million in return for 7pc.

Aldermore, which is considering a stock market flotation, will use the money to meet demand from retail customers and small to medium-sized enterprises (SMEs).

It now has more than 100,000 retail customers, with deposits of GBP3.3 billion and lending to SMEs and homeowners reaching GBP3.4 billion.

Chief executive Phillip Monks said: “The new funds provide us with the opportunity to do even more to champion Britain's small businesses, the lifeblood of our economy. Our strong capital position also enables us to look at a number of new product and service launches to further meet the needs of our customers."

The bank is backed by AnaCap Financial Partners and already supported by Morgan Stanley Alternative Investment Partners, Goldman Sachs Asset Management, Ohio Public Employees Retirement System and Honeywell Capital Management.

You can find more information on the various banks and factoring companies on the main website.

The latest quarterly figures from the Asset Based Finance Association( ABFA) show that the invoice finance industry is now supporting more than 43,000 businesses. Total client turnover for 2013 to date stands at more than £202bn, with invoice financiers projected to support over £270bn of client turnover for the full year. This would be an increase of more than 6% on 2012’s record total.

At the close of Q3, ABFA members had total advances out to clients of some £17.4bn, up 6% on the same period in 2012. This is only the fifth time the funding balance has been above £17bn, and the industry has achieved this milestone in both of the last quarters.

This contrasts markedly with the wider lending picture. Net lending to SMEs contracted by £1.4bn in Q3 2013, continuing its general trend throughout 2013.

The invoice finance industry continues to support smaller businesses, with almost 15,000 being found in the £0 – £500,000 turnover bracket, and over 30,000 in the sub-£5m bracket. However, the data shows that invoice finance is being used by more larger businesses as well; the biggest increase in client numbers was seen in the £100m+ turnover bracket, up 8% on the previous quarter.

 These figures are extremely encouraging when the general opinion from businesses is that they find it difficult to borrow money from the mainstream Banks. In my opinion one of the main differences is that there are a far great number of invoice finance companies than Banks. Banks tend to operate in a similar manner whereas the invoice companies offer real competition and a greater appetite to lend.

Our MD, Hugh Craen, has created his hot sheet of top tips that you can use to identify issues that may affect your chances to get the best deal with a factoring company or invoice discounter, when trying to achieve the optimum terms for invoice finance for your business.

Whether you are looking to better understand Factoring as a new business seeking out a facility for the first time, or a veteran business owner who is just looking for a better deal than you already have - maybe some of these issues are holding you back from a better rate, better payment terms or a large value facility - check out our top tips for presenting to factoring companies.