The Need For Industry Innovation to Improve SME Financing
Credit/lending to SMEs continues to catch the
headlines. The banks’ promises under Project Merlin are still not being met, though the situation has improved. Interestingly, the proportion of lending through various means of asset based finance has apparently risen, with ABFA’s recent press release specifically highlighting the growth of invoice finance over the past year.
ABFA (
http://www.abfa.org.uk) do a stellar job of promoting the industry with the limited budget they have, but I believe more can be done.
Looking at ABFA’s own statistics: 48,172 companies used factoring or invoice discounting at the end of 2008 – a figure which has fallen to 41,486 by 30th June 2011. They also claim that,
“the latest figures show invoice finance clients are (again) choosing not to access all of the funds available to them. Total available funds this quarter were £22.2bn, with £6.5bn of finance available but not drawn.”
Can it be that the majority of clients are “choosing not to access all of the funds available to them?” I believe the truth is more likely to be that the figures are rendered somewhat meaningless by the 496 companies with annual turnovers in excess of £50m who represent 1.2% of clients by number but one third of the turnover in ABFA’s statistics.
“the latest figures show invoice finance clients are (again) choosing not to access all of the funds available to them. Total available funds this quarter were £22.2bn, with £6.5bn of finance available but not drawn.”
The reality is that as far as the SME sector is concerned, the invoice finance industry, dominated by our well known and creaking high street banks, is running fast in the same spot, and has been for the past few years. With the state of the traditional lending to SMEs being what it is, the window of opportunity for independent,
22 entrepreneurcountry
By Nasir Zubairi, MD, EuroTRX.
non-bank firms within the asset based finance industry is tremendous. An opportunity to be the good guys, an opportunity to help the economy, resuscitate business, play a key role in getting the Economy growing again. They can work to change the perceptions of asset based finance and specifically invoice finance – make access easier for business and demystify the perceived complexity. Bolster marketing, re-position, innovate.
Sadly this is not happening, well, not to the extent it should be. Some claim (the banks) that the British Banker Association statistics for company borrowing continue to show that demand for
debt from companies,
specifically SMEs, is not there, and that the continued fall in net borrowing is a result of companies paying back loans to wipe debt off their books in these gloomy times.
Certainly, reduced confidence in growth and the economy as a whole does make SMEs cautious in their ability to continue to service debt. But in this lies the solution and enlightenment; traditional debt finance requires continued interest payments, impacting a firm’s cash flow and further straining working capital – the cash available to a business to service its monthly operations. Injecting capital through Invoice Finance does not. To simplify: Cash in from debtor, repayment out to financer, debt closed. Eureka!
The incentives for selling invoice finance to SMEs are just not strong enough. If an invoice finance salesperson is trying to
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