Very few companies in the UK today can say they got through the last 18 months completely unscathed. The credit crunch impacted heavily on the flow of finance to firms at a time when they needed it most, and battle-weary businesses are entering this new financial era with a changed perspective on their lending requirements. Today businesses are seeking to make the relationship they have with their financier top priority.

The Invoice and Asset Based Lending Industry is perfectly positioned to help UK businesses navigate this new economic landscape with confidence. Now more than ever, our industry’s aptitude for stabilising and supporting a business’ financial resources matches the shifting priorities and attitudes of Britain’s recovering businesses. Times are changing, and service strength has far higher precedence over cost as we approach the new challenge of recovery ahead.

This argument encapsulates a key conclusion of a recent high-level industry think tank hosted by Venture. It pegged service excellence as a defining character trait, setting Invoice and Asset Based Lenders apart from other mainstream business finance providers.  Over the last two decades the industry has developed a strong, relationship-based approach which has remained consistent throughout the recession. It is increasingly bridging the lending gap created by a loss of liquidity and confidence with traditional financiers.

The think tank, designed to examine opportunities for the industry in this radically changed lending landscape, brought together representatives from the Asset Based Finance Association, KPMG, the Federation of Small Businesses and the South East England Development Agency. The discussion stemmed from widespread recognition of a need for consensus on the sector’s trading future.

No longer seen as “alternative finance”, Invoice and Asset Based Lending has earned its place as a mainstream funding option by taking the time to understand individual business needs, instilling good, common-sense business habits and working in partnership with companies for a sustainable future.

Throughout the recession, businesses complained of a lack of cash. Yet, the Invoice and Asset Based Lending Industry has remained focussed in our value-add approach, and has proven to be a constant source of service-led funding.

Industry role models

The think tank and its resultant white paper, ‘The Evolution of Invoice and Asset Based Lending’, explains how the industry leads the field in the provision of service excellence – but unfortunately continues to be the financial world’s best-kept secret.

Invoice and Asset Based Lenders are, by their very nature, far closer to their clients than other financiers, which means an immediate view of fast changing business challenges is provided. Regionally-based Relationship Managers can often pre-empt potential challenges or opportunities and work with the client towards a swift solution.

The think tank concluded that greater emphasis should be placed on this ability to deliver a high standard of service and I call upon my peers to capitalise on our industry’s strengths and push this message. As a key sector USP, maintaining a focus on service excellence will help Invoice and Asset Based Lenders confidently navigate clients to a return to post-recession growth.

As we move into recovery, many businesses are finding that traditional methods of funding, like overdrafts, are no longer appropriate. Banks’ margins have been progressively reduced to the point where the balance has shifted from the traditional relationship model to a much more automated, “one size fits all” approach. Whilst this has led to a low cost delivery, it has not helped to strengthen client relationships.

The nation as a whole is entering an uncertain period of recuperation, and the outlook of British businesses will be wildly different from the previous approach which saw many cheap but snap lending decisions. Reliable delivery of responsive finance will be of paramount importance and as always our Industry is well equipped to take this challenge face on.

Peter Ewen, Managing Director of Venture Finance

Chaired by Professor Nigel Waite, head of the Financial Services Research Forum, the ‘Evolution of Alternative Finance’ think tank drew together industry representatives including the Asset Based Finance Association (ABFA), KPMG, the Federation of Small Businesses (FSB), the South East Economic Development Association (SEEDA), a successful retail business as well as relevant media and research bodies.

The impetus for the discussion stemmed from the widespread industry consensus that the Invoice and Asset Based Lending industry is at a watershed moment in its history. The closure of conventional forms of funding bought about by the banking crisis has injected a previously ‘niche’ form of finance with a greater degree of urgency and relevance to the UK business community – Venture’s own recent research found that 60 per cent of accountants reported clients are being more proactive in investigating alternative forms of funding.

Following the wide-ranging and lively discussions, the contributors found that for too long, ABL has been perceived as an alternative form of funding. If the lessons of the last decade are to be learnt and those preconceptions overcome, the attendees identified a need to educate government, introducers and end users to the benefits of a more ‘common sense’ approach to lending, giving particular emphasis to the higher level of service that is at the heart of the ABL approach. 

The report, which has been endorsed by Kate Sharp, Chief Executive of ABFA, concludes with some key areas for action, including an industry-wide effort to abandon references to itself as being ‘alternative’. The white paper outlines the need to – and benefits of – emphasising service as a key advantage over some aspects of the traditional banking offering, greater investment in education and promotion, and a simplification of the terminology which is so often cited as a barrier to entry.

Peter Ewen, Managing Director, Venture Finance comments: “At this important time for our industry, and in Venture’s 20th year of operation, we wanted to ignite a debate with key opinion formers. The conclusions reached should be of interest to key industry players and the wider advisory community alike.

“UK businesses are relying more heavily than ever before on strong relationships with their financiers – crucial to achieving stability and emerging from the recession in a position of strength. Greater numbers are also moving away from traditional sources to more robust and responsive funding methods. Invoice and Asset Based Lending offers both the quantum and certainty of funding to facilitate restructuring, growth and even acquisition.”

Those interested in receiving a copy of the white paper, entitled The Evolution of Invoice and Asset Based Lending, can contact Midnight Communication 01273 666 200 or download the report at www.venture-finance.co.uk/ABLwhitepaper.

Credit control has never been more important. One inevitable consequence of the downturn is an increasing number of businesses addressing their own lack of working capital by delaying payment to their suppliers. Thus, the company that used to pay on 30-day terms may now hold off on payment for 45 or even 60 days.

The evidence is more than anecdotal. According to an independent survey of accountancy firms carried out on behalf of Venture earlier this year, almost a third of accountants (31%) reported clients are now suffering an average of 14 extra days delay to debt payment, meaning a wait of six weeks for invoices to be paid. Worryingly, over a quarter reported clients even having to wait an average of 30 extra days. This kind of delay can have a serious impact on working capital, especially if a business generates the greater part of its revenue from just a handful of large customers.

What’s more, the study also found that virtually three quarters (72%) have seen an increase in their clients suffering with bad debt in recent months, underlining the pressure franchisors are currently under.

Taking charge
The first step is to fully understand all existing contractual obligations to the customer, and ensure they are fulfilled. What are delivery deadlines? Is there any special paperwork required for approval? What are the penalties for non-compliance? It’s also worth finding out as much as you can about your client’s processes. When do they process invoices? How many payments are issued monthly? This intelligence makes forecasting working capital easier.

For new contracts businesses should aim to have as many clients as possible on 30-day payment terms – meaning those who pay over 60 or 90 days will have less impact on working capital. However there is always a balance of power in negotiations. The Financial Times reported that some major retailers have responded to pressure to cut prices by renegotiating extended credit terms with suppliers from 30 to 60 days. In return for a major order, extra days of credit may have to be accepted.

Franchisors should also address their own credit control processes. Invoices should be issued promptly and the date for expected payment logged on your system. It is vitally important to ensure that sales are converted into working capital as quickly as possible. If customers are simply paying late – rather than renegotiating longer payment periods – businesses should consider proactive steps to ensure they make good on their debts and that they do so on time. Another major consideration for businesses agreeing a new supply contract is having the financial facilities in place to cover the gap between invoice and payment, which is where a Receivables Finance package comes into play.

Outsourced credit control
Working capital benefits aside, having a Receivables Finance arrangement in place removes the requirement for a business to manage its own proactive credit control operation. This function is outsourced to a specialist, who will provide a dedicated credit controller and operate to your business’s desired style of collection. Debts are settled much more quickly, often ahead of time, while management teams can focus resource on core business areas.

Performance varies from provider to provider. At Venture we collect our clients’ invoices two weeks ahead of the industry average, according to independent research by Business Money. Clients can also choose our Assured Receivables Finance service to protect against unforeseen bad debt if a customer fails to pay due to insolvency, or if the debt is not paid within 120 days of the due date.

Most businesses are already well aware of the potential damage that late payment and long settlement periods can cause. But if a management team know its clients well enough to forecast working capital in advance, as well as implementing and maintaining robust credit control procedures with the right financial facilities in place, a lack of ready cash should be a rarity.

Box out: the legal view
Robert Weekes, Head of the London Office at law firm Hammonds offers advice on contracts.

• If an existing customer seeks to renegotiate payment terms that will be less favourable to you, consider the risk. The customer could well be experiencing financial difficulty.
• If a major supplier wants to stretch out payment terms to, say, 60 or 90 days, remember that you can negotiate. Rather than 60 days, propose 45 with a guarantee of payment on the due date. If the terms and conditions of a contract change, you should check to ensure your credit insurance is still valid.
• Where possible, the supplier should dictate the payment conditions. If you require payment within 30 days, that’s what you should ask for.
• All terms and conditions of a contract should be agreed and signed before a service or product is delivered.
• The common practice of a supplier stipulating terms and conditions on the back of an invoice is less effective than agreeing terms in advance.
• You should always ensure that you retain title (ownership) of any goods delivered until payment is made. This will enable you to seek to reclaim the goods if a customer happens to go out of business.

Submitted by Venture Finance

Image Copyright Flickr

The views contained in this article are solely those of the author and do not necessarily represent the views of the Commercial Finance People

Research commissioned by premier Invoice and Asset Based Lender (ABL), Venture Finance, has revealed that the number of business clients being refused finance by traditional lenders this year has almost tripled.

The study of 1000 UK accountants has found the credit restrictions driving that escalation is in turn stimulating renewed interest in alternative forms of funding solutions such as ABL.

Venture’s previous research in 2008 showed less than a fifth of accountants’ clients had been refused credit from traditional sources such as banks. However, in just 12 months, spurred by current recessive conditions this figure has rocketed to nearly two thirds (58 per cent).

The study charts the continued growth of ABL since 2007 and supports the Asset Based Finance Association (ABFA) 2008 survey, which found that 64 per cent of the financial industry saw ABL as a ‘mature product, having proven its worth in the market’.  The service is now second only to Venture Capital investment as other forms of funding have dried up or fallen victim to their own recessive contraction (such as bank loans or family hand-outs).

Other key findings from the research include:

• Businesses in the North East are suffering the most with a reported 73 per cent of accountants’ clients having been refused credit this year, compared to 48 per cent in the South East
• Amongst the accountants surveyed, the recruitment industry (24 per cent) is seen to be suffering the most from financial difficulty, followed by construction/property (23 per cent). Retail services are perceived to be the most stable
• Seventy-one per cent of accountants have seen an increase in clients suffering with bad debt, with over two thirds (70 per cent), believing services such as Bad Debt Protection are more important for business today than a year ago

Peter Ewen, Managing Director, Venture Finance, comments: “Our research lifts the lid on the state of British business in these challenging times. The significant rise in companies suffering bad debt, combined with restricted access to finance, has encouraged others to take out Bad Debt Protection for peace of mind.

“But it’s not all doom and gloom – whilst the rise in credit refusal by traditional lenders may suggest the business world has come to a complete halt, of course it hasn’t – business owners are just getting smarter and proactively reviewing their options.  As the UK economic slowdown continues,  it’s reassuring to see that nearly two thirds of business owners are responding proactively by seeking robust and responsive alternative sources of funding like Invoice and Asset Based Lending – however it surprises me the Government isn’t doing more to highlight this option to businesses both big and small.”

Peter Ewen – Managing Director, Venture Finance

Venture Finance – A premier independent Invoice Finance and Asset Based Lender with 20 years’ experience helping thousands of businesses.