A brief history of invoice finance and the UK


A hard won reputation for delivering answers I


f the swinging sixties were a time of social change in the UK the social elements of business ownership had to adapt as well though like any social change there was a fierce reactionary rearguard action.


Along with the Beatles, the Stones, the


Mini, the E-Type Jaguar and the mini-skirt, invoice finance landed upon our shores. Aspiring business owners had long suffered lectures on overtrading when trying to borrow to take their businesses forward: the crime then was trying too hard, not knowing your place, being just a little above yourself. Given that fat, lazy, often family-owned businesses had a cosy relationship with the bank, that the patriarch often sat upon the bank’s regional board, it comes as no surprise to find that upstarts, often serious competitors to the established order, brought sneers of looking to lenders of last resort down upon their heads. Fast forward 50 years, would you believe that there are still isolated pockets of this nonsense to be found?


So let us address some of the less than positive remarks regarding invoice finance. In the introduction I have already outlined why banks are unable to offer an overdraft against invoices. Most overdraft facilities today are secured upon hard assets, essentially property and require little by way of day-by- day administration.


Because factoring in particular, and discounting too, though to a lesser degree, requires regular administrative exercises the costs are higher than those for an overdraft. A common misconception is that because advances of say, 85% of invoice value are made, that the factor retains to 15% when collected. Not so. The balance, less some finance charges is paid to the client upon


2 June 2011


collection but this is a fiercely competitive market and charging has to be realistic. Remember too that bank overdrafts are much more expensive than they once were, also that alternative sources of capital such as that from business angels or venture capitalists comes with a dilution of the business owner’s equity. There may also be a strategy that suits the investor more than the owner and this often includes an early exit route by a party looking to earn a compounded 30% pa whilst they hang around.


In that light invoice finance, with its easy entry and exit terms, is a cost effective way of providing working capital and leaving the business in the ownership of those seeking to grow it.


But it is important to choose an invoice finance house that suits your business and your plans for the future.


All of the high street banks offer such facilities, very often integrated with other bank services too. Size is not a problem but sometimes the needs of a business may be better met by one of the several independent invoice financiers, or by one of the many other banks, often under foreign ownership but still very British in style, that offer some flexible products or a more personal service level. Many independent invoice finance houses are SMEs so there is an immediate empathy with small business customers. There are invoice finance brokers who will advise on where best to go but always ask them for evidence of how many different financiers they deal with. If it is only one or two they are effectively tied salesmen so you may not receive impartial, or best informed, advice. RSM Tenon Business Finance Service


– see page 28 – deals with most finance houses and a call to them will quickly narrow the field.


Business Money – RSM Tenon


In this booklet I describe the wide range of invoice financiers available to the UK’s SMEs so you may enquire directly or take advice from RSM Tenon and go with their recommendation.


Many will invite you to talk to an existing client. Service is important as is flexibility for businesses with a seasonal profile, interest rates and charges should be discussed, as should termination fees and the notice required to exit the facility. You should consider if your invoice financier is big enough to grow with you if you are expanding fast. Cost is not everything, standards of delivery must be considered too if you are looking for a relationship. Take a regular look at the Dealboard


on www.business-money.com and see which company is doing what deals and for which business sectors.


Like the successors to the E-Type Jaguar and the Mini, invoice finance has responded to the needs of changing times and is now a bulwark of the UK’s SME sector.


Some 42,000 companies financing £212bn of sales a year say so.


Editor


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