Firstly, we asked 100 randomly selected SME businesses why they thought far more customers used overdraft than invoice finance. Their suggestions were as follows:

• 41% said overdrafts are everywhere, the bank offer them as soon as you open an account
• 24% said overdraft is the norm and businesses probably haven’t heard of invoice finance
• 24% said banks offer overdraft as standard
• 8% said invoice finance is far more expensive than overdraft
• 3% said overdraft is standard, invoice finance is specialist

That means that in 92% of cases the primary factor mentioned was the perception that overdrafts are the “standard”. In addition, some 24% of respondents specifically mentioned, without prompting, that a lack of knowledge of invoice finance may be partially to blame.

These are awareness and perception issues that could be tackled by the invoice finance industry.

We went on to ask those same SMEs what would make them switch from overdraft to invoice finance. The top answers were as follows:

• 68% said invoice finance being cheaper
• 22% said increased funding

In order to achieve a greater market penetration, this research suggests that the invoice finance industry should consider:

• Working to find ways to promote invoice finance as a funding option earlier in the lifecycle of a business, perhaps even before the business even opens a bank account
• Raising awareness of invoice finance as a funding option generally
• Focusing on the increased funding aspect of invoice finance over overdraft
• Seeking cheaper ways to structure invoice finance to better compete with overdraft

Article contributed by Glenn Blackman MBA MCIM, Managing Director of Cashflow Acceleration Limited, a specialist invoice finance brokerage. Glenn also writes regarding invoice finance and related matters at http://www.glennblackman.co.uk/

The website, which went live on 20 January 2012, allows small and medium-sized business owners to look for alternative forms of funding, including invoice finance, asset-based lending, trade finance as well as business loans. The Finding Finance specialist advisers are based throughout the UK and do not charge users or take a commission from lenders helping ensure owners get the best deal for their business.

Carl Jackson, head of RSM Tenon’s Recovery service line, said: “At a time when there is considerable debate about the availability of funding for small businesses, it pays business owners to familiarise themselves with the full range of funding options available. A traditional overdraft is often insufficient to support a growing small business and there are a range of alternatives offering companies increased funding, greater flexibility and, importantly for many business owners, reduced personal risk”.

Nearly 42,000 businesses in the UK are estimated to currently use invoice finance, a funding solution whereby a business owner bypasses the normal 30-day plus wait for payment of their invoices. Invoice Finance companies provide immediate funds against invoices raised, greatly assisting both owners of fast growing businesses and those with cash flow issues. The amounts borrowed under this type of arrangement have grown considerably in recent years as has the use of Asset Based Lending which involves borrowing against other business assets such as stock, plant and machinery and property as well invoices.

“Our industry’s opinion of these funding models has changed,” said Carl Jackson. “A number of years ago, they were thought of as a backstop rather than first choice solution – as funding has become scarce and people have begun to realise that the flexibility and terms of such funding models can be competitive, their popularity has risen. They are not the solution to every funding problem but in the current climate every business owner should know what is potentially in the finance locker”.

Article contributed by RSM Tenon

The survey found that while hopes for an increase in turnover are strong, expectations of profitability and plans for recruitment are less positive and it’s widely believed that downward price pressure will adversely affect success.
In spite of the widespread concerns for economic growth, 43% of UK small and medium sized enterprises expect their turnover to grow and only one-in-six expect to see a decrease during the coming 12 months.

There is however a sharp contrast in optimism depending on the size of the business. When it comes to sole traders, only 23% believe that turnover will improve in the coming year. This figure more than doubles when it comes to SMEs with 50-99 employees. Here over half (51%) expect turnover to improve.

However the outlook on profitability is less positive across the board with 21% expecting it to worsen and only just under a third (32%) expecting it to improve.

While there is a sizable middle ground of firms who expect both turnover and profitability to increase or remain stable over the coming year this does not translate into expected growth in employment levels, with only one in seven firms surveyed expecting to take on more staff during the year. 82% of UK SMEs say that headcount will either stay the same or worsen. While revenues might be expected to increase in 2011-12, this will be on narrower margins with 62% of SMEs agreeing that “Pressure to keep consumer prices down” will adversely affect their business. Nearly one-third (29%) expect this to have a major impact.

Matthew Reed, Managing Director Intermediary for AXA Commercial Lines comments: “When it comes to the fortunes of the UK’s SMEs, there is a more complex picture out there than the headlines would lead us to believe. It’s not all doom and gloom for sure.

However there is a real need for valuable advice when it comes to risk management given the fact that, when asked to identify key risks facing their business, nearly a quarter of UK SMEs (23%) couldn’t name a single one. I find this quite staggering. In my view it means that brokers have a major role to play in helping their clients to both understand the risks their businesses face during these difficult times as well as manage them.”

Contributed by: AXA UK – http://www.axa.co.uk/business

John Beaney, Head of International, HSBC Invoice Finance (UK) Ltd

Two thousand and twelve will be a defining one for international receivables finance and the factoring industry. The economic conditions are likely to challenge us whether it is through slowing growth in the emerging economies of the world, an election year in the US and recession – and continued fragility – in Europe. It is a year in which we have the ability to demonstrate our value to shareholders, clients and indeed governments.

Today’s regulatory framework prefers products which are efficient in the use of a bank’s capital and that is a huge opportunity for our industry. Services which help support sales when orders can be hard to come by are needed by businesses. Enabling them to offer attractive terms even to new customers and in new markets makes what we do doubly relevant.

To fulfil our potential, however, we have to deliver on our promise of excellence in credit management, supporting sales to sound businesses and helping clients to avoid losses when failures occur. We must continue to use our understanding of receivables to successfully balance risks and reaffirm our credentials as lenders of first resort.

HSBC starts the year in excellent shape. Our UK receivables business increased support for international business significantly in 2011. We’ve built this success on a service platform that earned us the recognition as ‘Best Factor’ by Trade Finance Magazine and ‘Best Commercial Credit Team’ from Credit Today and is also reflected in accreditation by the Institute of Credit Management, so we look ahead at 2012 with confidence.

Josep Selles, General Manager of Eurofactor Spain

Based on the statistics taken from the end of November 2011, we can say that this has been an excellent year for the factoring industry in Spain. Considering the economical environment, the flat consumer rates, the country not in recession but growing at just around one per cent, a growth of 9.6 per cent is a figure we would have taken at the beginning of the year.

With reference to the annual figures we can observe that domestic factoring is only 6.5 per cent up and the weight of the growth of the sector relies on international factoring (26 per cent), as export factoring was the one that grew the most (28.2 per cent) – probably a consequence of the fact that the Spanish companies which have a competitive product have increased their exports, trying to find markets with a higher appetite than ours.

The main problem has been how to deal with the portion of factoring where the public administration is the debtor. The traditional delay of payment within the public sector has increased strongly, creating a lot of difficulties – for the industries that were unable to advance the new invoices as the old ones remained unpaid, and for the factoring companies that have been increasing the portion of this business in their portfolio.

To be honest, it would be good to know someone who could accurately predict what is going to happen even in the next five minutes, economically speaking, because as I write this, what I say could quickly become ‘factoring fiction’.

We have had a change in Government but also, more importantly, a change of policies in the European Central Bank that has relaxed the financial constraints of financial institutions; this situation may lead to a certain recovery, but I’m afraid that only in the second half of the year.

I have no reason to believe that the factoring industry will not maintain at least the same positive trend that it started with in 2010 and maintained in 2011.  Also certain measures are being taken by the new Government to help the administrations to fulfil their commitments; a situation that may unblock the concentration of risk and allow us to offer more financing facilities to the industries.

Let’s keep the optimism. 2012 has an extra day. Let’s hope we will use it to improve the economical situation, not only in Spain.

Ken Hitzig, Chairman of the Board, Accord Business Credit, Canada

Our outlook a year ago was for no ‘double dip’ and no significant growth. We were right on both counts. While the economy in the U.S. was very weak, some improvements were noted in the second half of 2011, notably growth of GDP and a lowering of unemployment. However, the rate of improvement was small and if this continues it will take many years to return to ‘normal’ conditions.

There was some deterioration in the Canadian economy in 2011. GDP growth was very low, and although unemployment figures fell, the number of people out of work remained painfully high. The resource sector, a major part of the Canadian economy, suffered from a world-wide glut of oil and gas. A major confrontation between the environmental movement and the resource industry is looming for 2012. The resource people need to build thousands of kilometres of pipelines to the Pacific Coast (to ship to an energy-hungry China) and to the southern U.S. where there are refineries but not enough oil. Tens of thousands of jobs hang in the balance. There will be tremendous pressure put on the Obama administration by the labour movement, on the one hand, and the environmentalists on the other. Competition in the Canadian factoring market continued to be intense in 2011. Total volume handled declined ten per cent from the previous year to about CA$4.5 billion. The number of players declined as well, to 51 at 31 December 2011 from 55 a year earlier.

The market continued to be dominated by two companies, National Bank of Canada and Accord Financial; together they control two-thirds of the total volume. The main competitors for the non-recourse factors are the credit insurers who offer attractive rates but tend to be fickle with credit.

At this point (mid-January 2012) it is difficult to foresee any significant change in the economy for 2012.

Current exchange rate:

1 euro = 1.30127184 Canadian dollars

Marius Savin, Director of Transaction Banking, Standard Chartered Bank Singapore

The key industry players managed to grow their business further in 2011 across a variety of markets, after strengthening their credit models in 2010. In my view, this was the result of better focus on the innovative client value proposition across the entire supply chain as well as ‘slimming’ business models. Though these elements were always present in the peoples’ minds, the challenges faced from the financial crisis made them a must for business survival.

The 2012 outlook seems more challenging as there are many open issues still unfolding; however I do believe that there will be growth opportunities (no matter the size of the business) either by capturing new developing trade flows (Asia, Africa, Middle East) or by identifying niches (specific industries or trade corridors). At the same time, balanced resource/capabilities allocation and efficiency will become the primary focus for successful management.

Article contributed by BCR Factorscan

The plans are at an early stage and it is unlikely that Nationwide will be in a position to offer SME loans until at least next year.

However, the idea has already won support politically amid fears that SMEs are not able to access the credit they need to survive and grow in an increasingly difficult economic environment.

Chancellor George Osborne told the Treasury select committee this week that the national building society was weighing up the move, which he said would bring competition to the SME market.

Graham Beale, chief executive of Nationwide, told the Financial Times: “We have identified that SME lending would be a good strategic fit to our existing business, given our strong franchise, broad distribution network and current exposure to personal current accounts and commercial lending activities. We are developing plans to enter the market, but this will not be for at least 18 months or longer.”

Invoice finance and invoice discounting are used by small and medium sized businesses to improve their cashflow and fund their future expansion.
Prior to joining Aldermore, Ben held a variety of roles within the RBS Group, both with RBS Invoice Finance and Lombard Asset Finance.

Ben has considerable experience of working with SMEs in the West Midlands and Warwickshire.

Tony Smedley said: “I’m delighted to welcome Ben to the team at Aldermore Invoice Finance. Ben has a lot of experience working with small and medium sized businesses and I have no doubt he’ll be able to make a very positive contribution.”

Ben Hayward said: “Small firms in the Midlands area desperately need support from banks that are willing to listen to their needs and provide effective financial solutions. Aldermore has a strong reputation as one of the UK’s most innovative invoice finance providers and I’m excited about being part of such a dynamic team.”

Aricle contributed by Aldermore

Business turnover across five key sectors peaked during the third quarter of 2011 for the first time since the start of the financial crisis four years ago, according to the latest study tracking the performance of 3,500 businesses by Bibby Financial Services.

The Business Factors Index, which follows Bibby Financial Services’ clients across manufacturing, construction, business services, wholesale and transport, rose to its highest quarterly average since it began in 2007 pointing to a significant surge in performance in the third quarter.

The quarterly figure of 105.3 was substantially higher than the previous peak of 101.1 at the end of 2007, and only the third time since its inception that the Index has risen above the 100 mark that represents the level of activity in July 2007.

The turnover increase highlighted in the Business Factors Index echoes the latest GDP figures released on 1st November, which show the economy grew by 0.5 per cent over the same period.

The monthly breakdown reveals that while July saw a downturn from June, activity among small and medium-sized businesses rebounded strongly into August and accelerated in September to end the month at 110.2, close to the peak of 111.2 seen in March this year.

Across the sectors there have been some encouraging results in key areas such as construction which saw a quarterly rise from 98.1 to 116.8. And manufacturing also saw a significant quarterly increase from 116.6 to 122.0.

The report indicates that companies not only shrugged off the impact of the collapse in both confidence and asset prices in the financial markets in the wake of the renewed eurozone crisis, but may even have benefitted as productivity levels have evidently increased.

The large majority of firms are also now taking action to insure against any future downturn according to the latest Index, by cutting costs, improving supply chain management, implementing a growth strategy or even increasing prices.

However, the report for Q3 2011 does indicate that confidence among business owners is still waning despite the encouraging performance during Q3 and they feel the economy is not yet through the worst.

An additional survey of 450 small and medium-sized businesses which runs alongside the Business Factors Index shows that the number of companies describing current conditions as ‘very tough’ has risen since June. Nine out of 10 firms said they believed that the economic recovery would not be fully secure for at least another year and possibly three.

Edward Rimmer, UK chief executive of Bibby Financial Services, says: “The results from Q3 are a welcome shot in the arm for small and-medium-sized businesses as the first two quarters of this year had returned disappointing performance across the sectors.

“The increase in activity we have seen serves to underline just how important the role of the small to medium-sized business is in rebooting the UK economy. If the performance we have seen in Q3 continues, or even improves, it can only have a positive impact on the wider economic picture and areas such as consumer confidence.

“However something of real concern is the time businesses are spending chasing unpaid bills. “Almost one in 10 firms spend more than a week in every month pursuing debts and another seven per cent are putting aside four to five days on this task.

“This is a real issue for smaller businesses but there are some solutions to help deal with the late payment issue and free up cash flow. Invoice finance is one solution, which not only frees up cash flow but takes away the burden of chasing late payment and allows owners and managers to focus on other important core aspects of managing and growing their businesses.

”It is an issue we will continue to monitor and is certainly one that executives should look more closely at as they continue to manage their way through today’s volatile economy.”

The success of small businesses during Q3 in terms of increased productivity echoes the findings of the Bibby Financial Services future of business report 2020 Vision. The report suggests there could be up to 20 per cent more small to medium-sized businesses by the year 2020 as a result of the opportunities presented by e-commerce and technology.

Kate Sharp, chief executive of the Asset Based Finance Association (ABFA), says: “There are some really positive findings in the report which points to an increase in performance that is remarkable given the backdrop of the turbulence of recent months.

“Funding remains a key issue for small and medium-sized enterprises, so it is encouraging to see how many are preparing for a possible second downturn by investing in growth strategies, improving supply chain management and cutting costs.

“But clearly confidence is still a factor and we need to ensure the encouraging performance during Q3 is not overshadowed by talking up the spectre of a double dip recession.”

Further findings from the Index include:

Sector activity
• In construction the quarterly Index rose from 98.1 to 116.8
• Manufacturing also saw a significant quarterly increase from 116.6 to 122.0
• The wholesale sector saw quarterly increases at record levels rising from 121.2 to 145.1

Around the country
• In the North East of England 54 per cent of firms said conditions were tough or very tough, which is a significant increase up on 24 per cent from the previous quarter.
• In the North West the figure is 46 per cent and in Wales it was four out of 10. No company in the North West reported they were doing really well.
• In contrast just five per cent of firms in the South West took a gloomy stance while more than a third (35 per cent) said they were doing well.

Article contributed by: Bibby Financial Services

We wanted to gauge the level of demand for selective invoice finance and for the use of “auction” style sites for invoice finance, so we surveyed 100 randomly selected SMEs (Small and Medium Sized Enterprises).

Firstly, we asked them:

“Would you expect businesses using invoice finance to prefer to receive funding against all their invoices or only invoices that they select?”

63% of respondents thought that businesses would want funding against all their outstanding sales invoices, which is traditionally how the invoice finance market has operated, and is called “whole turnover” invoice finance. However, 37% of respondents thought that businesses would want to select particular invoices against which to receive funding.

This suggests that there is a clear niche for selective invoice finance although the majority seem to favour whole turnover style facilities which are more traditional within the industry.

Secondly, we tried to gauge opinion about invoice finance auction sites by asking:

“Would you expect businesses using invoice finance to prefer to receive funding from one named financier that they select; or from the financier that can provide funding at the most competitive price via an auction site?”

Interestingly 61% of respondents said “one supplier” and their main reasons for this choice were the hassle they expected to be involved with using an auction site and missing out on the relationship that they would build up with their financier.

39% of respondents chose the auction site option and said their reasons for doing so were that it would be cost effective and able to be used when they wanted.

Our findings suggest that whilst the traditional approach to invoice finance is still the most popular i.e. whole turnover funding from a company the client selects, there is a clear niche for invoice finance auction sites and selective invoice finance facilities. Furthermore, removing the perception of “hassle” and overcoming the relationship issues could make invoice finance auction sites even more attractive to invoice finance users.

Article contributed by Glenn Blackman MBA MCIM, Managing Director of Cashflow Acceleration Limited, a specialist invoice finance brokerage. Glenn also writes regarding invoice finance and related matters at http://www.glennblackman.co.uk/

Introduction
There is no doubt that the economic challenges of the last year have changed the face of commerce in the UK. But as companies look to diversify and take advantage of the potential profits international markets can offer, they must also balance the risks and supply costs involved. This means that supply chain finance (SCF) has been enjoying healthy growth in the UK throughout 2010-2011, with the leading banks, third party providers and consultants continuing to educate clients on the benefits and specifics of financing their supply chains.

Industry Environment
Domestically, markets work primarily on an open account basis. As in certain industries, credit terms have been extended up to 90 days in the post-crisis period, and, as a result, receivables-based solutions are growing in popularity among UK businesses.

The latest report on 250 UK-based corporates by the Economist Intelligence Unit, prepared in association with RBS, shows that a majority of them see cutting costs with suppliers as a key strategy for increasing revenues and preserving margins:  some 63 per cent of respondents negotiated lower prices in 2009 and 41 per cent hoped to do so in 2010*. However, one of the lessons of the recent crisis learnt by companies is that you can squeeze your suppliers too far – and this can result in putting your own production lines at risk if a crucial parts-supplier goes under. With the corporate buyers starting to change their attitude to strategic suppliers, we can see several tendencies in supply chain management (SCM) that have emerged in recent years:

• switching sourcing to cheaper countries;
• reduction in the number of suppliers and supply chain staff;
• relations between corporates and their remaining suppliers are becoming more cooperative than before the recession.

With companies becoming heavily reliant on their selection of suppliers and close cooperation with them, UK businesses are starting to see SCM well beyond pure price cutting tactics. The survey respondents listed specialist expertise as the second most important consideration when choosing a supplier, after cost. Though financial stability is just the third most important consideration when selecting a supplier, after selection, its financial accounts tend to become the top concern for ongoing monitoring by the buyer. In the past year, UK businesses have seen improvement in collaboration within supply chains and, probably as a result, more accurate demand forecasting and continuity planning then in pre-recession times.

As a company’s national and international operations develop the complexity in the supply chain increases exponentially, with broader geography, more complex products and components, different manufacturing and distribution centres. Yet, we see that frequently supply chains remain decentralised, with no single head, which has a negative effect on their optimisation.

Where international supply chains are concerned, following  natural disasters such as the recent earthquake in Japan, companies have learned the hard way that a predictable supply  with the minimum of disruptions is key to their businesses. We also see big UK businesses being less enthusiastic about sourcing from China than before. Despite output continuing to rise in China, growing wages are threatening the benefit of cheaper labour costs. Also, the competitive advantage that China has because of its undervalued currency may not be available for much longer. This could raise the importance of India as a sourcing channel for UK businesses. Studies show that businesses also expect to source less from North America in the near future.

Though its importance will continue to decrease, local sourcing is likely to remain a highly important channel for UK businesses of various sizes in the next three years.

Market Performance and Supply
Though the concept of supply chain finance was known to the UK market back in 2000, it has started to develop meaningfully since 2005. In fact, for the past six years SCF programmes have taken off considerably. In 2010 – 2011 we have continued to see the market growing as more corporates are becoming aware and recognise that with SCF, it is not only the provision or pricing of a facility that counts, but also the capabilities for both delivery (channel) and supplier on-boarding (programme management). As some of the longer term credit facilities are running off, clients can take advantage of more intelligent re-financing. Though our market is primarily FTSE 350 customers, we are starting to see more demand for solutions by smaller clients.

Some major trade finance banks, including RBS, have been very proactive in having the service ready for clients, even before a client might have realised a need for it. We are now in a situation where companies have been forced by the recession to make their assets ‘work harder’ by focusing more on working capital and creation of liquidity from within the balance sheet. These companies are benefiting from consultative work provided by banks two to three years ago in the development of SCF solutions.

The education process is also reaping results and an increasing number of successful programmes are being implemented by companies now waiting to take the plunge into SCF.

As globalisation on both the supply and market side increases, the complexity of supply chains also grows. A few banks, like RBS, are willing to take the lead to move into the more implementation-intensive structures by going cross-region. Our latest successes have been supplier finance programmes for UK buyers sourcing from Asia. At the same time the importance of local market as a sourcing channel for UK businesses cannot be underestimated. For this reason, some of the larger domestic banks tend to re-engineer their invoice finance (factoring) businesses to process domestic SCF solutions. At RBS, we offer a structurally different approach to SCF, as we can scale domestic receivables finance solutions to a specific country when required.

2010 saw new entrants into the UK SCF market. Although, with the new SCF providers trying to grow their market share, the service’s pricing has come under pressure, and an ability for the financier to make the programme work well (i.e. providing the right facility size, the optimal structure, the easy suppliers on-boarding, superior technological support and flexibility around a client’s needs) remains a vital competitive advantage for the major market players. In fact, we see the flexibility of SCF programmes as key to their success in the current market. Supply chain finance should be easily adapted to the buyer’s set procure-to-pay process, as well as considering the main drivers of the client’s decision to set-up an SCF programme. In this sense, we can say that all successful SCF programmes are ‘tailor-made’.

Non-bank third-party platform providers are also slowly establishing themselves in this space. Banks are still split in their views on IT outsourcing and some will insist on using their own platforms. We believe, however, that the market is diversifying – cooperation will be the name of the game, looking ahead. As such, RBS’ own platform (MaxTrad) is multi-bank enabled and we are running several successful transactions involving the use of third-party technology.

In 2010-2011, we have implemented a number of large SCF transactions for the retail, consumer products, telecommunications, aeronautics, defense and even the software industries. Programmes have ranged from £25 million to £200 million and on-boarded up to 500 suppliers in one chain. For large scale transactions, when the Bank’s risk appetite was near its limit, we have acted as lead arranger, sharing risks with partner banks.
In terms of the client’s priorities, post-shipment financing (including reverse factoring) takes the leading role followed by distribution finance.

Since we are aiming to provide receivables finance solutions for the whole supply chain of a corporate client, the proportion between supplier-centric and buyer-centric solutions offered is roughly 50/50. Though the popularity of buyer-centric SCF programmes is growing each day, they can take some time to start to generate revenue. Supplier-centric solutions are often more attractive as utilisation can hit 100 per cent shortly after launching. As such we see increased activity in that field.

As to the geography of SCF programmes, domestic SCF remains a very important part of RBS business. That share accounts for forty per cent of total SCF volume. Domestic with international solutions (UK corporates with foreign suppliers and distributors) has the same share as domestic SCF (40 per cent). The remaining twenty per cent of turnover is solely international. Though China remains the main source of suppliers, we see markets of origin varying depending on the industry sector. Retailers tend to source from suppliers across south Asia, while the hi-tech sector obtains supplies from European and other Asian markets.

While technology will drive simplicity, ultimately, reducing the complexity in the end-to-end process is key. Typically the buyer will have dozens or hundreds of suppliers. The suppliers may be located in a region where internet connectivity is limited, or they may simply not be interested in utilising technology and demand an ‘easier’ way to receive their funds. As such, a successful SCF application should contain an appropriate mix of hi-tech and grass roots. While the buyer will typically provide online data to the financing bank’s systems, on the supplier side, there will often have to be flexibility to allow for both straight-through-processing (STP) as well as paper interfaces.

Future Trends
We expect the market to continue to grow as a result of both credit refinancing, which frees up capacity for corporates, and a greater awareness of SCF solutions. Additionally, as working capital remains an important part of a client’s financial composition, SCF solutions will continue to be in demand.

As more providers launch SCF offerings, we expect price competition to increase, while at the same time quality of service should remain the key determinant of the customers’ choice.

There is much talk on the market about multi-bank supplier financing programmes, but few banks have fronted models. At RBS, we do have some programmes which are processed by third party providers where more than one bank is the funding provider: In these cases the corporates have opted to mandate two banks simultaneously to cover suppliers in different regions or countries. The thought process behind this is that the better bank gets additional business in the future as the scope of the programme increases.

Article contributed by: BCR Factorscan

However, only 27% of UK SMEs were able to boast a rise in profitability over the same period

21% of respondents state that a cut in Corporation Tax would be the single most important action the Government could take to help businesses grow
As the Office for National Statistics reports a growth in GDP of 0.5% in Q3 2011, UK businesses are faring better than they were six months ago, at least in some respects. However, SMEs remain cautious as testing times lie ahead, according to Hilton-Baird Financial Solutions’ latest biannual SME Trends Index, which questioned 417 business owners and finance directors in October 2011.

The Business Health Index, which uses a range of factors such as tax arrears, bad debt levels, turnover and profitability to calculate respondents’ financial health, reached 0.46 in October 2011 – up from 0.35 in April. Invoice finance users performed particularly well during this period, as reflected by their Index increasing from 0.62 to 2.24.

Further encouragement is provided by a positive swing in the recruitment habits of UK businesses, as nearly a third of respondents (32%) have increased their employee headcount over the past six months. Meanwhile the number of those cutting staff numbers is down by 4% to 27%, which indicates that the market is no longer contracting.

Despite this cautious air of optimism, further analysis of the findings of the SME Trends Index has revealed that conditions are still tough for many, with only 27% of respondents able to boast a rise in profitability over the six months to October 2011, compared to 32% in the previous six months. This situation is aggravated by rising operating costs for 77% and bad debt levels for 38%, an increase of 6%. As a consequence, many are worried about the future, with 34% citing generating new business as their biggest concern over the next six months, followed by managing cash flow (17%).

The respondents’ concerns are highlighted by a decrease in business confidence, with fewer than one in three (31%) expecting their business to expand in the next six months. With Mervyn King recently stating his belief that the UK is facing the most serious financial crisis we’ve ever seen, respondents are urging the Government to take action and help their business grow. Nearly a fifth (19%) of respondents would most like to see a cut in VAT, while a further 21% suggest a reduction in Corporation Tax would be the single most important action the Government could take to assist growth.

Ultimately, it is more important than ever to have the correct type of finance in place. Certain cash flow tools are better placed than others to enable businesses to overcome the key challenges associated with the current economic climate, such as restricted cash flow and late payments but, worryingly, business credit cards (49%) and bank overdrafts (48%) are the two most commonly used forms of finance amongst respondents after their existing cash flow (51%).

Managing Director of Hilton-Baird Financial Solutions, Evette Orams, said: “We should be encouraged by the results of the Business Health Index and the positive change in recruitment habits among UK SMEs. Regardless of whether people are being recruited on a permanent or temporary basis, this is a significant step in the right direction.”

Evette continued: “However, sadly the findings of our survey have confirmed that SMEs, who are so pivotal to the UK’s economic recovery, are still working against a series of tough challenges. We have consistently seen the value in a business ensuring they have the right finance in place. The benefits of using flexible funding solutions such as invoice finance, which are tailored to their individual requirements, are important to explore. Being able to access cash that’s otherwise locked in the business’ often largest asset, usually being the sales ledger, will only boost a business’ confidence and assist with sustainability and growth.”

Article Contributed by Hilton Baird