News Article

Factoring & Invoice Discounting

Businesses missing out on opportunities despite soaring use of invoice finance

By CreditMan Friday, August 12, 2016

By Steve Everett, head of product and propositions at Lloyds Bank Global Transaction Banking

The amount of finance advanced to Britain’s smallest business through invoice finance has soared over the past year, according to new figures from the Asset Based Finance Association (ABFA).

Despite this, thousands of businesses could be missing out on opportunities to grow due to a lack of awareness of different finance options.

Data from ABFA showed that the amount of funding made available through either factoring or invoice discounting leapt by more than 60 per cent, from £435million in the first quarter of 2015 to £711million in the first three months of this year.

This contrasts with research from our Lloyds Bank Business in Britain report that we carried out earlier this year, which showed that awareness of invoice finance had fallen among SMEs, with only 41 per cent of small businesses saying they were aware of it this year, compared with 49 per cent in 2014.

But the two sets of figures aren’t as contradictory as they may appear. Indeed, when looked at together, the figures suggest that the businesses that are aware and have already used invoice finance are continuing to use it, and are probably using it more as they grow and issue more invoices.

Meanwhile, more than half of Britain’s SMEs remain completely in the dark about how they could secure finance against unpaid invoices and use it to fund further growth.

Our latest Business in Britain report showed that late payments were already a problem for almost a third (31%) of SMEs.

That problem is often worse during the summer months as finance departments find themselves short-staffed due to holidays and unable to either process or chase payments effectively.

If payments slow – or a business’s rate of issuing invoices increases – more businesses will find themselves with more money tied up in outstanding invoices, and less working capital available to invest in growth.

Invoice finance works by allowing companies to access up to 90 per cent of an invoice’s value within 24 hours of it being issued.

Transworld Support – which trades as Parcel Delivery Company – recently used invoice finance after seeing demand for its same- and next-day delivery services soar thanks to work from customers including Amazon, UPS and Hermes.

In eight months, it doubled its headcount from 80 to 160, and now handles more than 5,000 parcels a day. Director, Andy Brookes, explained how using invoice finance had helped. He said: “Our business growth has accelerated considerably since we launched just two years ago.

“The popularity of online shopping and fast delivery options has given us a significant boost and the finance facility has freed up cash flow and given us the headspace and capacity to focus on winning larger contracts in the region.”

Other businesses use invoice finance to take the guesswork out of payment times, giving them greater control of the working capital they have access to. Because it can grow with a company’s turnover, it can also give them greater access to capital as their order books increase in size.

In doing so, invoice finance can also help ensure they don’t fall victim to overtrading, where rapidly-growing firms take on more work than they can handle and find themselves unable to access the working capital they need to pay day-to-day costs.

The fact that, according to our latest Business in Britain report, almost six in 10 businesses aren’t even aware of invoice finance as a tool suggests many could be missing out on growth opportunities due solely to a lack of awareness or advice about the funding options available to them.

Effective cashflow management and forecasting can help, but to fully ensure your business is making the most of the options available to it, seeking help from a trusted adviser who knows your business well, and is aware of the range of funding options available, is essential.