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 ‘2020 Vision – the Future of Business’ report focuses on the future of business over the next decade.

Among its key findings, it predicts a surge in the number of micro-businesses, often operating outside of traditional business hours and premises, as larger companies become unable to absorb the 5 million new workers expected by 2020.

It suggests large numbers of these ‘semi-detached’ firms – who group and share their expertise depending on their current need – will quickly overtake traditional businesses and will focus themselves around small and medium-sized enterprise ‘hubs’, rather than in major towns and cities.

In addition, the report highlights the emergence of a much greater dependency upon IT and mobile commerce by 2020, as access points and connection speeds increase exponentially and entrepreneurs seek to tap further the low overheads and barriers to entry afforded by a virtual business.

However, despite progress, the report warns that entrepreneurs of the next decade will still depend as much on business fundamentals, such as access to funding, as their present-day counterparts.

Edward Rimmer, UK chief executive of Bibby Financial Services, said: “If anything, the past few years have shown that UK businesses have the ability to adapt to face challenges head-on and evolve to respond to new opportunities. However, despite their adaptability, businesses can do little without access to the cash they need to grow and develop.

“The way companies need, use and access funding will certainly change in the coming years and it is important the finance industry evolves to meet these new demands head-on.”

Article contributed by BCR Factorscan

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

When Positive Cash Flow Finance was launched in December 2007, it entered the market on the eve of tremendous changes to the economic environment in the UK that would cause huge disruption for businesses up and down the country.

First Capital Factors, on the other hand, sprang up amongst the economic ‘green shoots’ of 2010 as the economy began to return to surer footing – albeit with some way to go before a return to the pre-crisis climate.

Yet both factors have mined the opportunities that arose from each side of the financial crisis and, what’s more, both insist that far from struggling to compete with large, bank-owned factors, their position as small, owner-managed receivables finance providers actually gave them a competitive edge during a difficult period.

David Smith, Managing Director of Positive Cash Flow Finance, explains, “We set up in December 2007, just as the financial world was changing. That created some great opportunities, because the banks that had been previously shifting money to all sorts of businesses suddenly started to re-examine their existing portfolio and, in many cases, managed away from very good businesses that we were then able to support. The timing wasn’t amazing,” Smith admits, “but it worked out quite well.”

For Positive, a strong funding line from Lloyds TSB and an experienced management team helped the company not only to survive such a major crisis so early in the business’ lifetime, but exploit opportunities in the market that were being overlooked by the banks.

“The banks stopped lending, but we had un-drawn credit lines that we were able to use, so it got us into situations where we were able to fund businesses that ordinarily wouldn’t have gone to a relatively new, independent factor. But the reality is that people had a hard time with bank managers during the recession and instead came to secure funding with us; a very much relationship-driven company that tries to work with the clients.”

David Marsden, of First Capital Factors, saw a similar situation to be taken advantage of in the post-crisis environment, with the banks exercising caution in their business lending activity – particularly in regards to smaller companies – even once the worst of the crisis was over. Marsden launched his first factoring venture, RDM Factors, in 1989, after working with smaller businesses and seeing the extent of their cash flow difficulties as a chartered accountant. After 17 years, the business was sold to SME Invoice Finance in 2006.

“About two years after we sold RDM, I began to see more opportunity in the economic environment, which had many similarities to the climate in 1989. Given the experience I was now armed with from RDM, I felt more able to do it again. I got together with members of my old team to establish First Capital, with former RDM partner John Bush as a consultant.

“There have been changes in the market in the last few years – obviously the recession – but I do see more opportunities arising as a slow recovery begins. I think the banks will remain prudent, and won’t find it easy to take advantage of some of the opportunities that will appear in the market as they might not appear commercially viable to them. As a smaller operation, we can service those clients in the way that many small businesses want to be serviced, and we can do so profitably and safely.”

But both Smith and Marsden feel that it is not just the banks’ unwillingness to fund smaller firms that enables independent factors to capture market share in the UK. According to Marsden, the personal service offered by First Capital Factors is what gives the company and other independent factors like it their competitive edge.

“It’s not just the personal attention, though that is an easy way to sum it up in a few words,” Marsden states. “It is more than that. There are a number of small factors like First Capital Factors that, like their clients, are owner-managed – we worry if it’s a slow week the same as our clients do. Because we don’t have layers of interim management, we are able to get much closer to our clients and furthermore, because we tend to have smaller rather than larger exposures, the average client will also be a lot smaller and that enables us, at a senior management level, to form a close relationship with the client at the same level. It is unlikely that those at a senior level at a large, bank-owned factor would be able to get as close to a customer with a £100,000 funding line as we would.”

Smith agrees. “I think the crisis changed the way people look at what we do. The only thing that’s unique about our business is the service we provide and the people who provide it. Prior to that, it was very much about price and maximising the most funding, but once things wobbled, some people found that their lender was less likely to support them. I think that business owners now look at value for money and say ‘right, what I want from this arrangement is a relationship and a partnership with my funder’ – and that has definitely worked in our favour. In three and a half years we haven’t lost a client due to service.”

Another significant change that should benefit smaller independent factors, according to Marsden, is the restrictions on home loans that have followed the crisis. Marsden explains that prior to the crisis, many small business owners opted to re-mortgage their homes or take out home loans to acquire funding in the £50,000 to £100,000 bracket, which directly competed with funding lines from small factoring companies. Now that this has become more difficult – not to mention less appealing – businesses could start to approach smaller factors for similar sized funding lines.

Yet significant challenges remain for independent factors that are necessarily not faced by bank subsidiaries – particularly in terms of funding.

“The thing that we have to guard closely is our ability to get funding ourselves,” adds Marsden. “It is of course a very cash-consumptive business by definition, and as we grow we need to source the funding for that growth. As an independent factor, one needs to protect that relationship with the funder very carefully. If you lose their confidence, it will have a very damaging effect on the future of the business.”

Both First Capital and Positive have benefited from the strong collaborative experience of their management teams – an issue that presents one of the biggest challenges to sourcing funding for an independent factor. With this in mind, do Marsden and Smith see a new spate of independent factors being launched by similar industry experts?

“I think it depends on the quality of the people who are trying to do it,” states Smith. “I think there is probably less access to funds than there was, and I think that two or three years ago there was probably more of an appetite to support new start-up factors – and you can’t run this sort of business without access to funding. However, I do think the funding would be there if the quality of management was at the right level.

“We’ve been supported fantastically by Lloyds because we have a very experienced management team here,” Smith adds. “I think you would be hard pressed to find another board in the industry with as long an experience in the sector than ours.”

But will the market stay positive for independent factors in the future? “I think so,” states Smith. “What we’re offering isn’t a commodity. It’s a close relationship and a better service and that’s what a lot of people want to see, especially after having bad experiences with the banks.”

“There always have been and always will be business managers who prefer to feel that they are dealing with a factoring company that is part of a bank,” adds Marsden. “But, at the same time there are a lot of small businesses who prefer to do just the opposite and deal with a factor that is not aligned with any clearing bank.”

Article contributed by BCR Factorscan

“In order to better tailor our products to meet customer needs, and hence grow the market further, it is helpful to consider business’ perceptions of the shortcomings of invoice finance at present.

“The research that we have conducted in the past identified that a significant proportion of businesses feel that ‘cost‘ is the greatest barrier to increasing the uptake of invoice finance. However, to better understand the other short comings of existing invoice finance offerings, we asked a sample of 100 SME businesses (Small and Medium Sized Enterprises) to put aside cost as an issue and tell us what other aspects of invoice finance arrangements they didn’t like.

“The results were as follows:

• Funding limits 20%
• Audits 18%
• Unapproved invoices 17%
• Paperwork 13%
• Personal guarantees 12%
• Electronic payments taking 5 days 7%
• Upsetting some customers 5%
• Time from invoicing to receiving funds 3%
• Credit limits 3%
• Lack of communication 2%

“Funding limits and unapproved invoices, when combined, accounted for 37% of the responses. These both relate to additional funding controls over and above the initial payment percentage used to determine the level of funding. These types of restrictions are commonly applied across the invoice finance industry and are considered by many to be the cornerstones of controlling risk. However, the fact remains that these items were highlighted as ‘pet hates’ by a significant proportion of businesses.

“What is also interesting is that there are several items within this list that can be addressed by products that are already on the market, but perhaps are not well known. For example, ‘paperwork‘ was mentioned by 13% of the respondents and there are products which already operate in a paperless fashion. Furthermore, there are providers who are prepared to provide funding without personal guarantees in some situations. Often these niche products may not be obvious to newcomers to the market.

“In summary, within a market that is clearly already providing significant funding to UK businesses, the above list sets out a number of items that could help some funders make their product offerings even more attractive to prospective customers.”

Glenn Blackman

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/

“On average, the businesses expected to pay 3.93% for factoring and 1.97% for invoice discounting, so they expected the cost of factoring to be almost double the cost of invoice discounting. It is clear that, in many cases, SMEs are also overestimating the cost of invoice finance generally. SMEs estimates appear to support their expectations that factoring will be expensive. 

“We also compared the pricing estimates of businesses that preferred bank owned factors with those that would opt for an independent provider. We found that those that would prefer an independent factor estimated the likely cost of invoice finance to be 57% higher than those that said they would prefer a bank owned provider. This clearly indicates an expectation that invoice finance from an independent factor will be substantially more expensive than that from a bank, which again is not always the case. 

“These results highlight once again that potential customers’ price expectations are often out of line with reality and we need to continue to work to educate businesses regarding the actual costs of these services.” 

Glenn Blackman

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

“We started out by trying to understand whether prospective clients had a preference for bank owned invoice finance companies or independent companies. We then questioned them about the reasons for their choices and this gave a lot of insight into how they choose between different providers.

“In terms of a preference between bank owned and independent invoice finance companies our survey of 100 SMEs revealed that:

• 56% of SMEs would prefer an independent invoice finance company
• 33% of SMEs would prefer a bank owned invoice finance company
• 11% of SMEs had no preference

“Of the 56% that said they would prefer an independent provider, these were their reasons:

• 41% Personal service
• 13%  Trust issues over recent events in the economy
• 9%  Customer focused
• 9%  Flexibility
• 9%  Reliable
• 7%  Not having “all eggs in one basket”
• 5%  No foreign call centres
• 5%  Not being just a number
• 2%  Less risk

“Of the 33% that said they would prefer to use a bank owned provider, these were their reasons:

• 73%  Well known name
• 15%  Professional
• 12%  Reliable

“These results are of value to all invoice finance companies, whether bank owned or independent. The value comes from continuing to appeal to prospective clients that have a preference for your type of provider but to also in trying to exhibit the aspects of the other category of provider in order to win more business. For example, an independent invoice finance company could work on building their brand to become a “well known name” and hence appeal to customers that may otherwise have chosen a bank owned provider.”

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

The post-recession environment presents a vastly different business landscape to that of three years ago. Some economists suggest that it is not just a temporary change but a transformation of the business and finance sectors and urge businesses to adapt to this ‘new normal’. For many businesses – SMEs in particular – traditional credit lines will remain reserved; with current research suggesting that as many as one in five small UK businesses are still unable to secure lending from their bank at present.

With Basel III regulations also threatening to impact on the cost and availability of trade finance – as trade finance is classed a high risk sector – many export businesses will need to begin to look to new financial services to support their liquidity and working capital needs, with some experts expecting a shift away from traditional finance in favour of receivables finance.

Steve Box, Managing Director of HSBC Invoice Finance (UK) and Chairman of the Asset Based Finance Association, explains, “With many predicting an export led recovery in the UK, businesses will be finding that their markets are changing, their customers are changing and that they are now looking into unfamiliar territory. By accessing the expertise that factors can offer in finance, credit management and protection from bad debt, businesses will be able to focus on winning new customers and serving them, instead of worrying about cash flow and getting paid.”

As for a shift towards asset based finance, Box believes this change is already under way. “The drive towards more capital efficient funding solutions and structured finance means businesses of all sizes are finding that they can usually generate more funding in a more efficient manner through the use of receivables, asset based lending and supply chain finance services.”

Michael Bickers of BCR Publishing, organisers of  Receivables Finance International 2011 conference in Rome, agrees that the New Normal holds a wealth of possibility for factors – if they understand this new environment and how to adapt within it. “For factors, the new normal may be quite different to that expected by traditional bank lenders. Growth out of recession will put new demands on balance sheets weakened by recession as companies try to restock to meet new orders. Larger corporates are increasingly interested in invoice finance structures as cash-flow has become a progressively central focus of many treasury operations

“A new playing field has been presented to global economies and the importance of understanding the fundamental shift in economic and market dynamics caused by the crisis in terms of its strategic impact on factoring business, is vital.”

How factors can  adapt and meet the demands of this new environment will form the focus of BCR’s Receivables Finance International conference in Rome, taking place on 24th – 25th March 2011 at the Parco di Principi.

Article contributed by Michael Bickers, BCR Factorscan

The award is the result of an independent poll amongst industry peers and marks the end of another year of growth for Leumi ABL, which also saw the company pick up the title of ‘Alternative Finance Provider’ from M&A Magazine in May.

Phil Woodward, Managing Director of Leumi ABL, comments, “2010 has been a year of extraordinary challenges for many businesses and I’m delighted to see Leumi ABL being recognised by the dealmaking community as a funding provider that can offer consistency, stability and certainty to businesses, particularly in these tough times.  We were overwhelmed by the number of nominations and would like to thank all those who voted for us.”

Paul Hird, CEO of Leumi ABL adds, “This award is particularly important to us as it demonstrates the trust we have gained from our introducers across the UK.   As we look forward to marking our fifth anniversary in 2011, our focus remains on providing the personal and flexible service for which we are known, whether completing straightforward invoice finance deals or structuring complex ABL facilities.”

Contributed by www.leumiabl.co.uk

He joined Aldermore with the bank’s acquisition last year of invoice finance specialist Absolute Invoice Finance, where he had worked for nine years.

Launched in 2009, Aldermore focuses its lending activity on small and medium-sized businesses. In its first year, Aldermore lent more than £300m to SMEs.

The bank has grown steadily since then with funding to SMEs in the second quarter totalling £302m.

Philip Monks, the chief executive of Aldermore, said: “Our strategy since launch has been to couple fairly priced and transparent products with taking a personal approach to the SMEs we lend to.

“Ian, with his considerable expertise in business banking and commercial lending helped make that formula work so well at Aldermore’s Invoice Finance operation, and I know that he will achieve even more in his expanded role.”

Aldermore Bank website: http://www.aldermore.co.uk/