Download this
article as a PDF
Securing funding in a downturn
3rd February 2009
David Paget, Regional Sales Director, Close Invoice Finance
There is no doubt that the financial downturn is hitting UK businesses hard,
with economic conditions the worst in half a century. For those who rely on
funding from high street banks the challenge is even tougher as they increase
their charges for overdrafts and commercial loans, or withdraw facilities
altogether.
Reduced lending from banks has the knock on effect of forcing larger firms to
take even longer to pay smaller suppliers. It now takes on average 88* days for
businesses to pay an invoice, with industry analysts predicting that this could
rise to more than 100 days during 2009. Those businesses who have large amounts
of stock tied up in their sales ledger face a critical shortage of funds to pay
for staff, overheads and creditors. This financial dilemma is felt most by small
enterprises that traditionally operate on the tightest of margins.
Many businesses have now begun to review their financial arrangements and
consider alternative forms of funding that will help them survive. Invoice
finance is one alternative which is increasingly attractive in the current tough
economic climate. The central premise of invoice finance is that it allows
companies, by assigning their unpaid invoices, to raise cash quickly and easily
against their sales ledger. It affords businesses a greater degree of
flexibility and control over their cash flow and can be a crucial tool for
growing companies. As funding is directly related to the company sales ledger,
businesses can grow without giving up valuable equity or having to pledge other
assets as security.
When working with a provider of invoice finance, a business can also benefit
from credit management and bad debt protection services. For example, if a
business uses a factoring service the provider will manage their sales ledger
and chase any debt in a timely, expert manner. In addition, if a company takes
up a bad debt protection service from an invoice finance provider then they
benefit from having their debtors assessed and advice given on which ones can be
protected (underwritten) or which have to be avoided. Overall this will help a
business manage and reduce their exposure to bad debt, as well as pay out should
they fall victim.
In the current financial conditions, businesses face higher loan costs from
traditional sources and a dearth of available liquidity. Invoice finance
provides a genuine alternative, providing a flexible way not only to survive the
current downturn but also deliver a real and lasting competitive advantage going
forward.
Article
featured in Ask the Expert
