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Companies move to secure cashflows
1st November 2008
SMEs seek alternatives to traditional bank lending amidst
unprecedented financial uncertainty.
Companies in Northern Ireland are increasingly turning to invoice finance as
a way of securing cashflow in the current financial crisis.
Harry Parkinson, managing director of Close Invoice Finance in Ireland, part of
the FTSE 250 merchant bank, Close Brothers plc, believes businesses are reducing
their exposure to risk by making the move.
“The evidence so far is fairly clear in terms of a demonstrable increase in our
business here and also anecdotally as companies try and secure their cashflows
at a time when the period between the issue and settlement of invoices is
definitely growing,” he said.
Based in Belfast and Dublin, Mr Parkinson is watching a growing trend among
companies across the island of Ireland as they make sure they get paid for what
they sell.
“While all the attention is on the banks it’s easy to forget that businesses are
still making things, selling their goods and services, exporting what they
manufacture and invoicing accordingly,” he said. “They rightly expect to be paid
for doing so but companies large and small are taking longer to settle their
debts as they themselves try to manage the flow of cash in and out of their
accounts.
Furthermore we are seeing mainstream banks trying to renegotiate overdraft and
loan terms with customers and that’s not giving businesses the confidence they
need, to do what they want to do in the current economic climate.
So invoice finance is increasingly being taken up and it’s not hard to see why.
Simply put invoice finance works when a company sells the total volume of its
monthly sales and in return receives immediately a percentage of that value back
in cash.
We’re servicing that up to a level of 95 per cent and it’s all accessible on
line for a financial director to draw down as and when needed,” said Harry
Parkinson. “This means cash is there for a business to use without the worry of
waiting for invoices to be paid by other companies who are delaying longer and
longer before settling, because of their own cash challenges.
It therefore makes perfect sense from a daily cashflow management point of view
to take up invoice financing. Far from being something which Northern Ireland
businesses used to view as a desperate measure, invoice finance is a smart
decision which puts control of the company’s revenue stream back in the hands of
the finance department and MD, and not leave it at the mercy of those taking
longer to pay.”
Close opened in Belfast back in April last year when the region’s economic
outlook was considered rosy given that a new Executive had been formed and
American investment seemed assured.
In the intervening period the company has seen a growing trend towards smart
cashflow management as the global economic slowdown finally found its way to
Northern Ireland’s front door.
“Despite the level of public sector expenditure here as a proportion of the
economy, something we all realise is too high, Northern Ireland will not be
totally protected from what is going on,” said Mr Parkinson. “Businesses still
need money to keep doing what they want to do and people out there need a place
for their savings.
In that regard the current crisis can be said to impact on us all. We are all
feeling the pinch, so to speak, and we at Close understand the challenges
businesses, especially SMEs, are facing right now.
Yet companies in Northern Ireland remain resilient and maybe it’s because many
of them have survived in tough times before and are innovative when it comes to
making a sale in a crisis.
We are seeing that today, as more companies, who already know that cash is king,
make sure they have the cash they need by making a commercial decision to move
to invoice financing. And it’s not just happening here but also in the Republic
where our Dublin office is reporting increasing interest in what we and indeed
the market has to offer.”
As companies across Northern Ireland dig deep to face the challenges of the
global economy, finding financial security through their cashflow would appear
to be an increasing priority.
Article featured in
Business Eye, Oct/Nov 08 issue
