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TAKE AN INTEREST IN RISING RATES

RISING interest rates are beginning to put local SMEs under increasing cashflow pressure according to David Thomson, Chief Executive of Close Invoice Finance.

The UK specialist in invoice financing says continued rate rises in the last six months are causing business owners and managers to reconsider investment plans.

“Companies are finding their cash flow situations under increasing pressure as they have to pay more on their loans and overdrafts,” said Mr Thomson. “We are seeing businesses cutting back on the things they want to do because their cash position is simply tighter.

“The cost of borrowing is now higher than at any time since 2001 and we just need to be careful that it doesn’t continue to rise and dampen growth prospects.

“While we have seen that companies remain modestly confident about the future the immediate impact of rate rises on their cash flow positions is something altogether different. Rising rates mean less cash to save, less to pay bills with and less to invest.”

Mr Thomson said that it would be counter-productive for the economy if the rate rises, which appear primarily designed to cool the housing market and encourage consumers to tighten their belts, ended up causing the very people who generate wealth to do so less effectively.

“Between interest rate hikes, inflation and the strength of Sterling against the Dollar squeezing export revenues and margins – the one key financial instrument in running a business is being put under increasing pressure – cash,” he added. “As everyone managing any size of business knows, cash is king; and with high interest rates comes increased levels of debt servicing, with funds needed for investment and simply paying bills, being siphoned off for other means.”

Mr Thomson said it always baffles him, as one interested in fostering an entrepreneurial culture, that many businessmen and women who start companies with such great enthusiasm, full of drive and ideas soon find themselves bogged down in uncertainty as sales come in yet the cash doesn’t follow.

At the same time the need to finance the outputs puts pressure on resources and the bank balance, and those who would be better placed developing ideas and selling are left to be credit controllers, chasing cash rather than sales.

“There is an answer to this for hard pressed SMEs and it comes in the shape of invoice financing and it’s quickly becoming a solution of choice for companies of all sizes, from small to large SMEs,” said Mr Thomson. “It’s a smart commercial strategy for businesses where cashflow is such a sensitive commercial imperative.

“Why should one shy away from a solution which guarantees a flow of cash, placing companies in a position to pay their bills as well as finance their growth?

“Why should such a system be seen by some as counter-intuitive or an admittance of failure. Some of the most successful international companies use invoice financing to ensure their liquidity. Have they got it wrong?

“It’s not in my interests to persuade people to have invoice financing when they clearly may not need it. We’re in the business of partnering companies, sitting alongside them, helping them grow.

“Invoice finance is not a commercial crutch, it’s a strategic enabler, and really quite a smart thing to do. That’s how we view it.”

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