This growth comes on the back of continued growth in advances over the past five quarters and shows that UK and Irish firms are increasingly opting for this type of finance over other forms of lending. The latest figures also 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.

Of the total funding provided by members, SMEs received almost 40%, or just over £4bn this quarter.  A decreasing gap in the level of advances between SMEs and businesses with turnover above £100m suggests a growing confidence amongst SMEs as they get comfortable with increasing debt levels. This is supported by total clients’ sales growing 14% over the past year to reach £59bn.

The latest ABFA economic report also shows that export and import factoring have both grown substantially, enjoying a year-on-year rise in client sales of 48% and 47% respectively. This leap in demand for import and export factoring indicates that while the UK market remains sluggish, clients are looking to customers outside of the UK to buy their products, and are choosing this type of finance to help facilitate overseas trade.

Credit protection payments by ABFA members to their clients have also continued to decline, dropping by 27% over the last year to total £4.9m, consistent with the UK-wide trend of lower default rates on loans and a stable rate of write offs. Together with the shortening average debtor day numbers both these factors reflect one of the key product benefits of asset based finance, namely introducing firmer debtor disciplines.

Kate Sharp, chief executive of the Asset Based Finance Association, said: “The figures in our new economic report indicate growing business confidence amongst invoice finance clients, both SMEs and larger firms. This contrasts markedly with the general negative sentiment concerning the state of the wider UK economy and a general contraction in the stock of lending. Firms using invoice finance are seeing rising sales and are continuing to have access to an ample supply of finance. With total client numbers rising by 244 in the last quarter, the invoice finance sector is providing much needed finance to many UK and Irish businesses and is, and will continue to be, a significant contributor to supporting the wider economic recovery.”

Article contributed by the ABFA

The UK and wider market

The asset based finance sector is very well established in the UK and has had many years of uninterrupted growth with the exception of 2009 when most key indicators fell. Nevertheless, 2010 saw a return to growth in most of the key areas, including a record client turnover of £212.3bn. This return to record highs in client turnover was achieved partly as a result of the modest growth in the economy but also the continued switch away from traditional bank lending.

While 2009 saw a severe dip in the UK’s economy, since then the picture has become a bit more positive with growth in both the factoring and invoice discounting industries, plus the wider economy. Admittedly, the UK’s growth has been extremely limited, but this contrasts sharply with that of the asset based finance industry which has almost returned to pre-recession levels of lending and activity.

Export finance is another area within the industry that is becoming increasingly popular. Client sales in this area have increased by 39% to £3.5bn over the past year. This growth has most likely been assisted by the sluggish UK economy as many businesses look to exports as a way of exploiting the growth opportunities abroad, a trend that’s set to continue.

However, faster economic growth is likely to be hard to achieve with the huge cuts in public expenditure that the present coalition government believes is necessary to bring down the budget deficit. The flow of finance to personal and business borrowers also remains well below its peak, although Project Merlin, the agreement between government and the major banks to increase lending to SMEs, opens up opportunities for asset based finance to assist the banks in meeting their agreed lending quotas.

So far this year, the Asset Based Finance Association (ABFA) has released two sets of quarterly figures, both showing a return to strong growth within the industry. The first of these was in March which showed total lending growing by 8% year-on-year, and with advances from members at the end of 2010 totalling £14.9bn.

The very latest figures from June 2011 show this growth has continued, and indeed is actually outperforming all other types of business lending. Total advances from members last quarter has seen growth of 9% year-on-year (see chart 1), whereas wider bank lending actually contracted by 2.5% in the same period. The figures also show turnover growth of 15% year-on-year, with total client sales in the quarter of £55.8bn (see chart 2).

These latest statistics show just how successful the industry is; with very positive sales growth for companies using invoice finance, plus there is no shortage of available funds. Compared to other major forms of business lending, asset based finance has grown the most, as both clients and lenders realise its inherent strengths in these unpredictable economic times.

The ABFA has also for the first time calculated that clients actually have sufficient funds in place and are now actively not choosing to access all the finance available to them. From the most recent figures in June, total funding available was £21.1bn yet only £14.8bn was utilised by clients, meaning there were £6.3bn of funds still available.

The international market

Growth within the asset based finance sector has not been confined to the UK; it is also continuing to grow internationally. In Europe the industry saw 19% growth in 2009-2010, North and South America saw 31% growth and Asia saw an incredible 69% growth over the same period. This rapid international growth demonstrates the global embryonic nature of the industry and its products. As the benefits of products such as factoring and invoice discounting continue to be acknowledged and become more established across the globe, this growth should begin to plateau as the products reach their natural market penetration.

This strong growth does however contradict the international economic climate. With much of Europe still in recession during 2009-2010 the asset based finance industry still managed to grow a defiant 19%. The challenging financial climate has actually assisted in increasing the popularity and awareness of asset based finance. With many countries struggling to stabilise their economies, they have increasingly turned to asset based finance products as a lower risk business lending alternative. Furthermore, traditional forms of funding have been drying up, but firms still need working capital to fund and grow their businesses, and asset based financiers have often been able to bridge this gap in the market.

As more and more markets become aware of the benefits of asset based finance, we will begin to see increased visibility of the products which in turn should result in the continued global growth within the industry.

In summary

Right now the international invoice finance and factoring industry is uniquely placed to assist small businesses with cash flow requirements. The banks are clearly struggling to reconcile a number of conflicting issues. The legacy of the recession is a dampened risk appetite, and rightly so, some lessons need to be learned. This is coupled with a legislative requirement for banks to hold greater levels of capital but at the same time they are being encouraged by governments to lend more. Asset based finance has proved to be a very capital efficient and low risk product.

By using asset based finance methodologies, greater levels of finance can be made available to good businesses across the globe that may have been hampered by a lack of liquidity.  The above evidence suggests that asset based finance will be a key product for the international economy and its recovery. Plus, with firms using invoice finance seeing their sales rise, even in the face of a sluggish economy, it’s clear that these products are the way forward for growing businesses across the globe.

Contributed by ABFA

The report, shows that, while many studies talk of increased business confidence around the nation, nearly a third of small businesses are pessimistic about their future.

Only 16% of businesses are very optimistic about their outlook, while only half are slightly optimistic about what’s ahead. The study also found that over two thirds of SMEs think there is a clear lack of support in their area to stay afloat and prosper.

The biggest financial concern for a quarter of businesses is a lack of access to finance with many doubtful that this will improve soon.

A third believe it will be more than 18 months before they see an improvement in the availability of finance, while a similar number don’t think it will ever get easier.

Contributed by Factorscan

Image copyright: Flickr

The ABFA asked its members, the UK’s top clearing banks and independent financiers, how beneficial the Enterprise Finance Guarantee (EFG) scheme has been to their clients. The overwhelming majority saw the scheme as providing very little benefit.

Kate Sharp, chief executive officer (CEO) of the ABFA, said: “The ABFA survey findings appear to support concerns that the scheme itself may be to blame, as the banks do not like recommending it because the benefits for both small businesses and the lender itself are just too low. The government’s intention in trying to make funding easier for small businesses is spot–on, however the scheme itself isn’t working well. The government needs to work harder at making it more usable and reduce the administrative time involved in setting it up.”

These findings come on the back of figures showing that lending under the scheme has fallen by 23% in the six months leading up to the general election

Article contributed by Factorscan

SMEs were asked if they were aware of the Enterprise Finance Guarantee Scheme, Working Capital Scheme or the Capital Enterprise Fund, which have all been developed by the Government to provide much needed financial support to the country’s small businesses. A massive 56 per cent came back and said that they hadn’t heard of any of the schemes.

Kate Sharp, chief executive officer from the ABFA, believes that SMEs are at risk due to a lack of understanding about the Government’s financial offerings. She said: “Over the last few years, the Government has stepped up to support UK SME organisations through various schemes. Unfortunately, there is a severe lack of understanding among this group about what financial support is actually out there. If they don’t know about the schemes, how can the Government help them?”

The research also highlighted that obtaining credit insurance is also an issue for SMEs. Credit insurance minimises the risk of customers defaulting on payments or them going into administration. Of those interviewed 78.8 per cent said that as much as 20 per cent of their client base had been refused credit insurance over the last six months. More worryingly, 2.6 per cent said that over 81 per cent of their clients had no credit insurance whatsoever.

This means that nearly 100,000 SMEs in Britain are putting their businesses at risk by not ensuring they are fully protected. These firms are denying themselves the opportunity to manage the risk of losing money and reducing their own credit ratings, which will impact on their ability to obtain credit from suppliers.

The time it takes for invoices to be paid is also extending, as average debtor days lengthen. Over 11 per cent of respondents report that it is taking over 70 days for them to get paid compared to just 6.6 per cent last year – that is more than double the normal trading terms.

Kate Sharp continued: “With the external pressures on SMEs growing daily, it is worrying to see the reduced availability of credit insurance putting extra pressure on these companies at a time when they are already facing many other pressures. Coupled with the fact that debtor days are extending, it is more important than ever that businesses try to protect themselves against unforeseen circumstances.”

The research also suggests that unemployment may slide further with 81 per cent of SMEs questioned planning to make as much as 10 per cent of their workforce redundant over the next six months.

Over 2,000 SMEs were interviewed for the research, which was undertaken by Hilton Baird Financial Solutions, and were asked about the current state of their finances, the wider economic troubles and attitudes towards asset based finance.

Contributed by Factorscan – www.factorscan.com