Business Media Articles (Archived)
The new bankers for the 21st Century
When referring to British banking institutions, the media, and in fact the public at large, speak of the 'big four' clearing banks, or mention banks across the board. They are ignoring the business activity that is rapidly becoming the new bank for the new millennium.
Invoice finance factoring and invoice discounting now accounts for such a huge percentage of British business funding, particularly in the small to medium-sized sector, that it is taking over from the banks in importance for the day-to-day trading of SME companies across the country.
Official figures show that in 1993 British businesses was existing on more than £16billion of bank overdrafts while less than £2billion was funded by invoice finance. Over the succeeding years the gap has narrowed dramatically. Despite an increasingly bouyant economy during the period, the amount of cash tied up in overdrafts for small businessess dropped to little more than £10billion while business using factoring passed the £5billion mark.
That meant that over six years invoice finance had forged ahead from providing little more than 5% of small business funding to accounting for over 30%. And the figures for the last quarter of last year are equally as dramatic showing turnover of clients of members of the Factors & Discounters Association grew by 18% to £65billion, while the funds they provided to their clients passed £6billion - a 26% increase on 1999.
More than 28,000 companies now use the services of FDA members - almost half of them with an annual turnover of less than £500,000.
Individual commentators will suggest many reasons for the increasing popularity of invoice finance I feel it is a sign of the times: business owners and managers expecting the service, security, loyalty, support and ease of communication that they enjoy in their domestic and personal lives.
Take service. Most bank account holders expect to be able to obtain cash from their accounts on demand by inserting a card in a 'hole in the wall'. Why, people are now asking in greater numbers, shouldn't we have instant access to our company cash? With invoice finance they do. Up to 80% of sales invoice values are available immediately the invoice has been raised, and the balance when the customer pays. And if the factoring company has as up-to-date technology like Close Invoice Finance, clients will be able to view the state of their finances, the cash available, and access it at the push of a button.
On the question of availability, bank overdrafts provide no security whatsoever; they are repayable upon demand and demands are usually made when a business can least cope with them. In fact the bank overdraft has, in many ways, outlived its useful life. Invoice finance is tied to the sales ledger, so if the sales have been made, the cashflow will benefit immediately surely a much better mechanism for the success of a business.
Naturally, because invoice finance is such an integral part of British business funding, all the major clearing banks are active in the sector, but I would suggest that the emergence and rapid growth of independent companies such as Close Invoice Finance have introduced new standards of quality, service and loyalty. They are tailoring their service to the needs of their clients, particularly those in the SME sector.
There will always be a requirement for some form of current account and business development loans, but the flexibility of using the sales invoice to fund the business is clearly proven.
In the modern world the old fashioned bank manager approach is very much a thing of the past, but the need for advice and support is as great as ever among the small business community. Most independent factors are making a point of continuing the traditions of building financial partnerships between financier and client, working together to grow the business by dedication to old fashioned values and services.
Most businessmen forge strong, rewarding partnerships outside their working environment, so why should the same not be applicable within the business that is providing the personal income for them and all their employees?
When a businessman returns home he wants to talk to human beings, not machines that's why most independent factoring companies have real people to answer their telephones rather than a faceless voice listing a variety of options. This is how relationships are built up and are almost impossible to achieve when dealing with the clearing banks; senior staff within the independent factor have empathy with the small businessman as they are themselves successfully operating in a tough world, fighting for market share against massive opposition.
My directors have even greater understanding of the concerns of small businessmen who have taken second mortgages to raise the cash to make the company tick every member of my board has done exactly that.
Factoring and Invoice discounting is not just here to stay, it is going to play a more prominent role in British industry and commerce than it does at the moment. The clearing banks will always have the lion's share of the market, but the independents who offer added benefits that only a smaller (but nevertheless well run) organisation can, are poised to make their presence felt even more substantially over the coming years.
They will truly be an integral part of the new bank for the new millennium.
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