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The surging popularity of invoice finance

With cash being crucial to business survival and growth, SMEs need to access cash through alternative funding solutions to continue to enable them to adapt, innovate and grow.

Invoice finance is one of the most effective ways for businesses to improve cash flow and sustain growth in today’s uncertain climate.

As SMEs face up to a deepening late payments crisis, invoice finance – borrowing against the value of unpaid invoices – has surged in popularity to provide crucial support in tough economic times.

By releasing up to 90% of the value of unpaid invoices, businesses can access additional working capital and use the funds to support day-to-day cashflow requirements or fuel future investment plans focusing on corporate social responsibility.

Invoice finance is not a new funding solution; it has been around for decades and has supported many thousands of businesses over the years, as it still does. By unlocking cash that could otherwise be trapped in unpaid invoices, invoice finance is a financial solution that can support the entire credit management process, protect against the risk of non-payment, and deliver funding when many other funding types are unable to.

In the UK, invoice finance has become an increasingly popular alternative to traditional financing options like bank loans and overdrafts, as it offers a more flexible and accessible solution for businesses in need of cash flow support and caters to a wide range of industries, including manufacturing, wholesale, construction, recruitment, and professional services.

Recent data from alternative finance provider Time Finance has shown the growing popularity of invoice finance amongst the B2B community, with demand predicted to rise throughout 2023 as SMEs set out to stabilise their finances.

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The new insight shows that invoice finance is ranked highest amongst alternative finance solutions, with 32% of financial intermediaries stating that invoice finance will be the most popular service to support cashflow this year.

Phil Chesham (pictured), Managing Director of Invoice Finance at Time Finance, commented: “We are seeing a real uplift in businesses that come to us for invoice finance, and this is definitely a trend we expect to see continue throughout 2023. At face value, this is an indicator of the cashflow challenges that businesses are experiencing, but looking at this more positively, we can take this as a sign that more businesses are discovering the real value of invoice finance.

“Invoice Finance is a helpful tool to manage cashflow and when harnessed as a part of a long-term financial strategy, it can ensure that a business has an uninterrupted supply of working capital in the bank. As a result, invoice finance enables businesses to inject their own money into their investment plans, whether that’s recruitment, skills development, equipment or marketing.”

Time Finance’s plans to double their invoice finances sales team in 2023, with the recent appointments of Thomas Ludden, Tariq Bourdouane, Neil Fullbrook and Casey Baldwin, shows the rising popularity of invoice finance witnessed by alternative finance providers.

There are a number of reasons for the rapid expansion of invoice finance in the UK, but a key driver is an increase in the number of late-paying companies. In their research, Time Finance found that B2B businesses are owed an average of £250,000 in unpaid invoices and some wait up to 120 days for payments to come through.

Access to liquidity is more critical than ever for SMEs who are the backbone of the UK economy, with many traditional financing providers increasingly rejecting applications for cash. Reducing the funding available to SME businesses during tough economic periods only hurts it more at a time when demand for liquidity needs to be expanded and not reduced.

Rising inflation and interest rates, along with increasing energy costs, are also challenging small businesses this year, with many facing closure. Providing SMEs with a path to secure lending will play an integral part in the economy’s resurgence.

Invoice finance provides SMEs with a variety of benefits including flexibility, faster turnaround, scalable funding, higher borrowing potential, and mitigating payment risks. Smaller independent funders also have more flexibility than traditional providers and can take advantage of value-creating opportunities.

By embracing alternative financing options such as invoice finance, SMEs can not only survive but also thrive in a post-pandemic world, despite the current economic challenges they face.

By Lisa Laverick

Source: Asset Finance International

SMEs
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Invoice Finance / Factoring – Case Study

The Client:

The client is a Freight Forwarder business and has traded as a Limited Company for the past 7 years, with a healthy turnover of circa £600,000 per annum.

The Scenario:

The client has had consistent cash flow issues due to their providing standard payment terms of 60 days to their customers for invoices, in addition to experiencing occasional late payments. Conversely the operating costs of the business, being predominantly wages, needed to be paid either weekly or monthly, therefore presenting an overall cashflow issue.

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The Solution:

The client was initially presented with several Business Loan options we managed to secure for them, although they ideally wanted a greater degree of flexibility in their borrowing. We therefore searched the whole market for an Invoice Finance facility for them as this was deemed the most suitable solution for their needs.

We managed to secure a £100,000 Invoice Finance Facility which will enable them to be paid advances on their outstanding invoices up to the facility limit over the coming year. The facility works with the lender deducting a set percentage as their fee, once the invoice has been paid by the client’s customers.
This solution and Invoice Finance Facility will greatly aid the client’s cashflow when they need it most and it won’t be restricted by any rigid monthly repayment terms.

Summary:

Invoice Finance / Factoring is designed to increase a company’s cashflow and fund growth. It is a relatively quick method for accessing business finance against a company’s account receivables.
Whilst personal and business credit may prevent access to Business Loans in some cases, Invoice Factoring Lenders are more focussed on the ability of a business’s clients payment history.
The facilities put in place are invariably Unsecured options which don’t require security over and above the invoices themselves, whilst also removing the time-consuming headache of chasing payments, since these now become the responsibility of the lending partner.

If you have any questions about Invoice Finance &/or want to receive a free quotation or advice, please call 03303 112 646 today. You can also fill in this short online form to get started. Our team of Invoice Finance Experts will get back to you straight away.

UK SMEs
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SMEs using invoice finance experience dramatic reduction in debtor days

Invoice finance firm Optimum Finance has seen a sharp increase in the last six months of new clients coming to them with an average of 90+ debtor days causing significant cash flow pressure.

Yet within three months of accessing invoice finance, Optimum Finance clients are experiencing a reduction in this ‘debtor gap’ to an average of 46 days, with some businesses seeing a drop of up to 58 per cent in the time taken to get invoices paid.

Average days sales outstanding (DSO) is a key metric in measuring the financial health of a business. The standard payment terms for UK businesses are usually 30 days. However, the actual time taken for monies to be received often goes far beyond this with some businesses waiting several months to receive cash for work already undertaken, or goods sold, three or four months previously.

This reduction in DSO is just the tip of the iceberg when it comes to the financial benefit experienced by firms choosing an enhanced invoice finance service which also effectively outsources their credit control function.

Optimum Finance has developed a cost savings calculator designed to demonstrate how its services can actually offer significant savings overall, rather than being another cost or overhead to the business.

This proprietary financial model shows SME owners how reduced DSO combined with the salary savings from not having to employ staff to chase unpaid bills, external credit check costs and interest savings on monies owed can actually make a positive impact on the bottom line in the first financial year working with Optimum Finance.

Commenting on the payment pressures faced by UK SMEs, Optimum Finance CEO Richard Pepler said, “Cash is the lifeblood of any business and not being able to get access to monies owed in a timely manner effectively paralyses commerce in this country.

“A lack of ready cash combined with no guarantee that payments will be made when they are due means strategic decisions to invest in new staff, resources, training, capital expenditure or growth plans are often put on hold or never carried out.

“It also has a knock-on effect to the time these SMEs take to pay their own suppliers and they end up locked in a vicious debt cycle, where their cash is actually sitting with the big corporations they do business with. Some SME directors also delay or don’t pay themselves in order to keep as much cash as they can inside the business.

“To combat this issue we have invested heavily in a highly experienced credit control team. This means our clients get access to specialist support and expertise in credit control and management, which in turn delivers long term cost savings.”

SMEs make up 99.9 per cent of all private sector companies in Britain, employing a total of 16.1m people and ploughing billions into the economy every year.

The UK late payments culture is more prevalent in some industries than others with construction, retail and grocery sectors often highlighted as the worst offenders.

In a bid to address this commercially crippling issue, the government issued new regulations in April 2017 forcing all large UK companies to report publicly on their payment policies, practices and performance. However, with little consequence for late paying large corporates, the situation has not improved in the last 18 months since its introduction.

In fact, the picture has deteriorated in the last 12 months. According to a recent report by UK payment experts Bacs, the UK’s smallest businesses face a bill of £6.7bn, up from £2.6bn in 2017, just to collect money they’re already owed.

The cost of recovering overdue money is now at an average of £9,000 for each business and, according to the Bacs report, “more than a third of small to medium sized enterprises (SMEs) coping with late payments are waiting two months beyond agreed terms to be paid. That’s double the number of businesses who said the same in 2017 (19 per cent).”

By Sarah Dunsby

Source: London Loves Business

Brexit
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How Invoice Finance could drive the UK economy following a no-deal Brexit

With the details of Theresa May’s recent Brexit deal pushing cabinet members to resign, and a seemingly long road ahead before a draft deal is passed by the UK parliament, a no-deal Brexit is becoming more than just a worst-case scenario.

Small-to-medium-sized businesses are making more conscious efforts to put serious contingency plans into place, as a result.

A CBI survey on Brexit preparedness this year stated that more than 50% of businesses had examined different Brexit scenarios, and more than 60% had begun developing contingency plans in the event of no deal.

However, findings from the same survey showed that 77% of businesses said the number of potential scenarios made planning for Brexit challenging. Amid all the uncertainty, the question remains, what can SMEs do to keep a strong economy post-Brexit?

A study published this year by Equiniti could have highlighted Invoice Finance as the answer. The report demonstrated a close correlation between the level of business borrowing and rising Gross Domestic Product (GDP); connecting the two makes a strong case for Invoice Finance being an optimal way to fund business growth in the wake of a cliff-edge Brexit.

Understanding the threats

So what happens if we depart from the European Union with no concrete agreement? Where does that leave the small business owners of Britain?

One of the biggest talking points surrounding life post-Brexit falls on the dissolution of a transition period. Without a deal in place before exiting the EU, we would need to revert to trade on the basis of World Trade Organisation rules in a matter of days, meaning businesses would need to be ready to react to the changes, and fast.

CBI data shows 48% of businesses that had completed scenario planning found the main difficulties related to the costs incurred for internal resources or for hiring external help.

With no implementation period, increasing costs attached to simple business essentials, additional tariffs and the anticipated fall in sterling, SME survival could be in real jeopardy.

Numerous organisations including the Centre for Economic Performance at the LSE and the OECD have raised concerns that the WTO scenario may reduce UK GDP by up to 10% or more, which could result in company earnings and stock prices reducing with it.

These unfavourable outcomes could act as deterrents to potential investors looking for investment opportunities, placing further pressure on the types of funding available for SMEs.

To survive a no-deal Brexit, UK SMEs will need to find quick and accessible ways to acquire and maintain healthy cashflows, source new suppliers, and access funding facilities that grow in line with their business to help pay unexpected tariffs, charges and taxes.

However, searching for the best most relevant methods of financing and investment will be difficult in the current climate, leading many to query which kind of financial backing is the most viable for SMEs post-Brexit?

Connecting the dots

There are a small number of financing options that allow SMEs to borrow large sums of money without having equally large minimum turnover requirements.

There are even fewer that also provide flexibility, competitive prices and the kind of quick turnaround decisions that will be necessary to keep the economy afloat post-Brexit.

One of the main sources of funding that adheres to all the above is Invoice Financing, and it is this option that may well hold the key to the betterment of the UK economy.

Invoice Finance is a way for businesses to borrow money against the outstanding amounts due from their customers. Businesses pay a small percentage of the invoice amount to the lender as a borrowing fee which allows business owners the financial flexibility to access working capital.

Findings from the Asset Based Finance Association (now known as UK Finance) show that Invoice Finance is already popular amongst SME’s, with the amount advanced to the UK’s smallest businesses jumping over 60% within just a year. The goal here will be for SMEs to continue this pattern after Brexit decisions have been made.

With small and medium enterprises totalling 99.3% of all UK private sector businesses, the loss of capital from this sector could stifle business growth and impact the overall strength of the British economy.

To stop this from happening, small-to-medium sized businesses need to continue growing and thriving, with strategic lending solutions such as Invoice Financing acting as a brilliant way to adapt confidently after Brexit has passed.

Source: Asset Finance International

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SMEs to be allowed to borrow against unpaid invoices

Small businesses will be able to raise cash against unpaid invoices from the beginning of next year. The government reckons this will provide a £1 billion long-term boost to the economy, and that £9.5bn worth of SME invoice finance is waiting to be unlocked.

At present, small businesses cannot raise cash against unpaid invoices from large firms. Big suppliers use not paying invoices as leverage when negotiating with SMEs. New laws will arm small businesses against these unfair contracts, which stop them raising money from unpaid invoices. This will help strop larger businesses from abusing their market position.

Small Business Minister Kelly Tolhurst said: “These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply.”

Larger businesses often use restrictive contract terms to maintain a hold over their suppliers; small suppliers are often unable to negotiate changes to the proposed contract because they do not have enough power.

From the start of 2019, SMEs can assign their right to be paid to a finance provider such as a bank in exchange for funds, typically 80 per cent of the value of the invoices. The initial advance is received within a few days and the balancing 20 per cent (less fees and charges) is paid when the customer settles the invoice.

Edward Winterton, UK CEO of Bibby Financial Services, was one SME lender who welcomed the news.

Winterton said: “Invoice finance is an essential means of growth funding for more than 40,000 businesses throughout the UK. However, the ban on assignment of receivables imposed by larger businesses can both limit and prohibit many SMEs from accessing much-needed working capital, stifling growth and placing pressure on cashflow.

“The government’s proposals are a positive development and will undoubtedly support the growth of a wider number of businesses throughout the country, in turn boosting economic growth.”

Source: SME Web

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How invoice financing could help London businesses

Setting up and running a business in London offers a lot of fantastic opportunities across many industries, from finance and technology to catering and more. With these opportunities and the chance to grow comes plenty of obstacles and challenges though. As one of the most expensive cities in the world, the costs can set many back. Invoice finance can offer a solution to many London businesses in various ways.

Cover the rent

One of the largest expenses for any London business will be renting office space. The housing market gets a lot of attention due to its ever-increasing prices in the UK’s capital city with less paid to commercial buildings. In London the average cost per person to rent office space ranges greatly between £650 to £1400 per person. This is more than double and at times triple that of that in Birmingham, Manchester and Leeds. Invoice financing can help provide the finance at the start of the month to cover rent before clients pay their invoices.

Get ahead of the competition

Most other businesses know the value of setting up at least a base in London, meaning whichever sector yours works in there will likely be plenty of competition nearby. Invoice financing offers the opportunity to grow your business by providing finances up front that you are owed by clients. Rather than hold off from any ambitious projects until they have settled, you can use these funds to grow and take advantage of opportunities your competition in London may otherwise miss out on.

Stay on top of bills

The main thing that kills 25 per cent of businesses is poor cash flow. In London especially, this can occur due to costly bills and overheads going out before client payments have landed. With invoice financing your cash flow process can be smoothed over by having easy and quick access to the cash required when it’s needed. This can ensure you stay on top of bills and don’t become one of the 25 per cent.

Starting up

London provides a great environment for starting a business, with it a go to place for technology and financial start-ups. Along with ensuring you have enough initial capital to get started, you will need enough to cover the costs and develop growth. Invoice financing can help work towards this if your capital starts to run out and the business has to wait a few weeks or months before clients are due to pay (with little room to negotiate being a small company).

Starting or running a business sin London can be highly successful and invoice finance could be a solution worth investigating to create a strong financial process.

Source: London Loves Business

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Demand for cash flow finance expected to rise in 2018

Demand for invoice finance is predicted to rise by 21% during 2018, according to Hitachi Capital Invoice Finance.

The rise would take the company’s total credit lent to businesses during the year to more than £1 billion, compared to £893 million during 2017.

The predictions, based on funding line data, come as its research shows almost half of all small to medium UK enterprises turned down a contract or order last year because they couldn’t deliver due to a lack of available finance.

Hitachi Capital Invoice Finance research shows that invoice finance demand tends to grow throughout spring and summer, with SME’s most likely to seek funding between May and August.

The company has published a 2018 Cashflow Calendar that identifies key dates and financial events throughout the year that could influence a business’s cash flow and guide business owners to help better manage available funds.

Andy Dodd, managing director of Hitachi Capital Invoice Finance, said: “A sound business will match its method of borrowing to the asset being financed and on which the debt is secured. This means cash flow finance represents some of the lowest interest rates and most flexible methods of finance, which rises and falls with fluctuations in turnover.

“Therefore, if the business has sound profit margins, the cost of interest will behave like a variable cost, moving in line with turnover.

“Crucially, a good cash flow finance provider will ensure that the collection of debtor invoices is efficiently and professionally carried out to minimise the amount that needs to be borrowed, mitigating future interest rate rises.”

Source: Asset Finance International

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Invoice financing reaches record high in UK

Figures from finance and banking trade association UK Finance have shown invoice financing has reached a record high of more than £22 billion.

The figures showed an increase in invoice finance to businesses in the third quarter of 2017, with a year-on-year rise of 13 per cent.

Growth

A number of invoice financing firms have driven growth in the invoice finance and asset-based lending sector. Global electronic invoicing firm Tungsten Network Finance announced its total originated invoice outstandings have reached a record £54.5 million. This is up from 89 per cent of £28.8 million in October last year.

Despite the positive figures, there are concerns about how negotiations over Brexit will affect invoice finance levels, with research from tech services company Equiniti showing a connection between the confidence of businesses when borrowing and economic fluctuations in the UK. Figures from the analysis showed declines in GDP growth have had a knock-on effect on the confidence of businesses when it comes to invoice borrowing.

Encouraging

Commenting on UK Finance’s figures, UK Finance Director of Invoice Finance and Asset-Based Lending Matthew Davies said there is increasing understanding among businesses of all sizes of how invoice finance and asset-based lending are able to support them as they grow. It’s encouraging that a significant proportion of the sustained increases in lending recently is helping to boost exports.

However, he added  more funding could and should be provided through invoice finance, and called for the UK Government to bring forward long-awaited legislation to provide smaller businesses in particular with access to much-needed capital.

Source: LSBF