RSM Tenon – Carl Jackson
The accountants view on the invoice finance industry statistics
E
very year, the Asset Based Finance Association (ABFA) announces the official statistics for the invoice finance industry. However, what do they actually mean from an accountants point of view? What do the statistics tell us in simple terms when discussing the industry in 2010 compared to 2009? Well, hopefully this article will provide some insight… The UK market showed growth in both factoring and invoice discounting of approximately 10% with over 41,000 businesses using invoice finance facilities.
Businesses with a turnover of between 0-£5m were the biggest users of invoice finance, representing 84% of the total market. The total number of advances reached a staggering £15bn with clear growth in payments against plant and machinery and stock, 88% and 21% respectively. Export funding increased by 35% compared to 2009, which is in line with the current trend in the UK market.
Reduction of 30% in credit protection being taken by clients mainly due to lack of insurance backed position for many customers in this climate. Increase shown in advances against plant and machinery of 88% signifying the flexibility of the ABL facilities now being made available as an adjunct to debtors as the main security. Overall fall in number of clients using asset-based lending by 5% although clients lost and clients gained in final quarter of 2010 are fairly neutral.
8 June 2011
The present climate and the lack of appetite by banks to lend have and will subsequently increase the use of factoring and invoice discounting. Our own business finance team witnessed a 60% increase in the volume of invoice finance enquiries in the last six months alone compared to the same period in 2010. Therefore, in summary, the above would indicate that asset-based lending is a growing market which is open for business as a source of finance particularly in this economic climate where the banks are often struggling to be in a position to back every deal. This in itself has created an opportunity for increased rates to be earned by the ABL’s with the independents closing the gap in terms of margin over the main clearers.
Accountants, their clients and invoice finance
In practical terms, the growth of invoice finance and the problems currently faced by the banks in funding certain businesses, particularly those facing financial difficulties, has led to an increasing number of accountants embracing the invoice finance industry. The historic view of invoice financing being the last resort funding source is (in most cases!) long gone with the industry statistics confirming SMEs now borrow more via this source than a traditional overdraft. At RSM Tenon we view invoice finance and asset-based lending as mainstream and have made a concerted effort to forge close relationships with the majority of lenders in this arena. Our corporate finance and business finance teams work closely with their accountancy colleagues to
Business Money – RSM Tenon
ensure both clients and non-clients seeking assistance are given completely impartial advice to find the best funding solution for them.
A temporary dip in financial
performance, lack of suitable security or, often, fast growth are all excellent reasons for opting for the invoice finance route. When added to the speed with which a facility can be put in place coupled with the inherent flexibility of invoice finance, the case for advising clients to pursue this route is often compelling. During the last 18 months in particular, we have been encouraging many clients to look at the broader asset-based lending route. The ability to borrow against stock, plant and machinery, goods in transit and property, often rolled into a combined facility, gives many asset-rich businesses a genuine new funding option. We have used this route many times with clients both to re-finance broken relationships away from incumbent lenders and, more positively, to create significant headroom for future growth/further acquisitions.
The challenges of credit control and avoiding bad debts
Invoice finance and factoring in particular are very helpful in assisting cashflow and also in aiding credit control and mitigating bad debts. We do, nonetheless, find that credit control and credit assessment of new and existing customers remains a major issue not only for our clients but also for many professionals and other friends with whom we have strong relationships. Many accountants and lawyers tell us they have an ongoing need to better
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