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/

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

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

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/

Damon Walford said: “I’m delighted to be joining Aldermore, which is one of the UK’s fastest growing and dynamic new banks. Cashflow finance is critically important for SMEs across the country and Aldermore has a proven track record of developing a range of innovative financial solutions for British businesses.

“As the economy struggles to shake-off the effects of recession, business owners are looking for financial support to enable them to exploit business opportunities which present themselves. Aldermore is dedicated to helping SMEs and has exciting plans for the future and it’s great to be part of the team.”

Ian Wilkins, Group Managing Director of Commercial Finance at Aldermore, said: “I would like to extend a warm welcome to Damon and wish him every success in his new role. Damon brings with him considerable experience which he’ll be able to put to good use as he guides the business through the next important stage of its development.”

Aldermore recently announced that it made £150 million of invoice finance funding available to SMEs during September, an increase of 42% over the same period last year. Client numbers also increased by 19% over the past year. To put this achievement in context, data released by the Asset Based Finance Association shows that total advances made by all member firms grew by 12% during the same period and there was no growth in the total number of new clients.

Across all of its business lines, Aldermore has lent £470 million to small and medium sized businesses, taking the value of loans on its books to £970 million and total assets to more than £1.2 billion.

The bank has 8 regional business offices, providing invoice finance, asset finance and commercial mortgage facilities to more than 9,500 business customers.

Article contributed by Aldermore

With banks constantly missing lending targets, business owners are looking into alternative sources of finance to complement any existing banking arrangements.

At present the government’s attempts to push for banks to lend more under Project Merlin and to effectively distribute the liquidity injected by the treasury have disappointed in providing adequate finance for small and medium-sized enterprises (SMEs).

Nevertheless it is not necessarily productive to simply blame the banks. Fresh uncertainty over both the US economy and Eurozone’s abilities to tackle large deficits and a growing sovereign debt crisis has affected bank performance. Combined with the number of debt instruments on commercial banks’ balance sheets and the impending requirement under the Basel III agreement for banks to raise their capital reserves by between 9 and 10 per cent, some banks simply do not have the capacity to lend any more at present.

With traditional sources of finance more restricted, private high net worth individuals, who are currently achieving no return from deposits in banks, and institutional investors who are seeking returns on their capital can act as a complementary source of finance.

MarketInvoice effectively taps into these very significant pools of capital to channel non-bank funds to small and medium-sized companies.

Every year, UK companies take advantage of invoice financing on over £220Bn of commercial invoices through arrangements with banks and factoring companies.

At any time, £13bn worth is outstanding. At MarketInvoice we have trading statistics that show FTSE 250 companies (high street and household brands) paying SMEs as late as 90 to 120 days. Already under strain due to reduced bank lending, these SMEs are facing serious cash flow difficulties.

Traditional factoring and invoice finance can be ill-suited to these companies as they often require an entire sales ledger flowing through a factor. In addition, factors necessitate stringent criteria and often exclude certain types of invoice, such as export invoices, while typically requiring ongoing service fees and collateral requirements such as personal guarantees or all asset debentures.

MarketInvoice allows SMEs to get cash upfront on their invoices by auctioning them on an online marketplace. High net worth individuals and institutional investors place bids and advance cash to these companies in exchange for a small discount fee, which is driven down through a competitive auction process.

With no ongoing service fees, no requirement for collateral such as personal guarantees and the freedom to choose when and how often they desire to auction an invoice, it has seen quick take up as a credible alternative to traditional capital sources.

Today’s funding landscape confirms that it is unsustainable to rely solely on banks to provide the capital to fund small and medium-sized companies. MarketInvoice can act as a complement to traditional bank facilities while adding much needed competition to the finance sector.

With investors increasingly looking for alternative asset classes to invest in, it is time to push for greater innovation in financial services. Rather than relying on Government to legislate, UK entrepreneurs are trying to disrupt and level the playing field for access to capital”

Article contributed by MarketInvoice

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 Bank of England’s “Trends In Lending Report” (July 2011) notes that “credit availability for businesses was broadly unchanged” although “demand for credit from businesses remained subdued”, and “larger firms continued generally to be able to access bank lending” whilst the “opportunities for SMEs remained more variable”. This does not seem an unexpected position within an economy that grew by just 0.2%* between April and June this year.

The opportunity for invoice finance has always been greatest where businesses are undergoing high growth and need flexible finance that will grow with their turnover. The level of funding available through invoice finance often outstrips that which may be available from bank lending in such circumstances, but these cases will be limited within the current economic conditions.

The other area of opportunity for invoice finance has been where businesses are struggling with their cash flow and need help to pay their creditors. One factor that takes effect here is the availability of Time to Pay Arrangements from HMRC. Whilst there have been some reports of a tightening up in the availability of such arrangements, there has not been a wholesale withdrawal of the scheme and understandably so in the current, delicate economic climate. Hence this has not increased the pressure on firms to seek help from invoice finance, to bridge the gap. Invoice finance is often available in difficult financial circumstances, such as these, when other forms of bank lending are not.

Generally SMEs seem to be “ticking over” and being more modest in their plans rather than being bold and seeking the funding to back their aspirations. Unless there is some change within the economy these conditions are likely to remain unchanged for some time to come.

Despite this outlook, there remains a lack of awareness of invoice finance amongst SMEs. In our recent survey of 100 SMEs, 31% of respondents thought that so few businesses use invoice finance because it is not promoted enough
and/or businesses had not heard of it. The opportunity for the invoice finance companies remains to raise the profile of these products with SMEs to maximise the chances of businesses turning to invoice finance when they have a cash flow need.”

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 ‘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 economy might be on the road to recovery, but business confidence is still faltering with 28% of UK businesses admitting they are concerned about generating and winning new business over the next six months. This was revealed in the latest SME Trends Index from commercial finance brokerage, Hilton-Baird Financial Solutions.

The biannual survey showed that UK businesses are ultimately worried about the future, with only 33% of respondents expecting their business to expand in the six months to October – down from 45% last November – despite the growth recorded in UK GDP during the first half of the year. These business fears are prevalent across all industry sectors and sizes, with the construction, haulage and printing, publishing and packaging industries the most apprehensive as to what the immediate future will hold.

Further analysis shows that UK businesses, whilst primarily concerned about the prospects of securing new business over the six months to October 2011, have a number of additional areas of concern. The figures revealed that 25% of engineering and maintenance firms are worried about their customers taking too long to pay for goods and services already rendered. More than a third of manufacturing firms are anxious about the potential rise in costs of raw material and fuel (35%), with 28% of companies turning over more than £3 million sharing this concern.

Despite these findings, there are methods businesses can employ to help secure their future and ensure a positive outlook. In particular, companies using invoice finance and asset finance had higher expectations for their business over the next six months, with 41% of invoice finance users and 39% of asset finance users predicting that their business will expand over the next six months. This compares to only 33% of bank overdraft users, signifying that the type of funding that SMEs secure can impact on business confidence.

Managing Director of Hilton-Baird Financial Solutions, Evette Orams, said: “Whilst sadly the findings of our business confidence survey conveying that SMEs continue to experience significant challenges during this period of recovery are no great surprise, the results do indicate that there are glimmers of hope. We have found there to be a correlation between increased business confidence and businesses using flexible funding solutions, which are tailored to fit their needs.”

Evette added: “By utilising the correct funding, a business will undoubtedly see a positive effect on their strategic path and on their investment. Access to cash can open many doors and allows for optimism as businesses are able to take advantage of opportunities as they arise, be they a new order, venturing into new territories or simply agreeing early settlement discounts with their suppliers. Confidence is key not only to a business’ success, but in fact in everything we do, which is fundamental to our recovery as a nation.”

Evette Orams - Managing Director, Hilton-Baird

Article contributed by Hilton-Baird Financial Solutions.

To find out more about Hilton-Baird Financial Solutions call 023 8070 7390 or visit www.hiltonbaird.co.uk/fs.