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March 25, 2011updated 12 Apr 2017 4:15pm

Asset-backed finance supports SME growth

Renewed concerns about the state of the UK economy were sparked by the Office for National Statistics shock announcement of a 0.6% contraction during the final quarter of 2010.

By Evette Orams

Use of import factoring and export invoice discounting suggests overseas sales are an important factor in business recovery, writes Evette Orams, managing director of Hilton-Baird Financial Solutions.

 

Photo of Evette Orams, managing director of Hilton-Baird Financial SolutionsRenewed concerns about the state of the UK economy were sparked by the Office for National Statistics’ shock announcement of a 0.6% contraction during the final quarter of 2010.

However, the Asset Based Finance Association’s (ABFA) latest figures show that targeted cash flow support is delivering real benefits to businesses.

Asset based finance clients experienced sharp increases during 2010, including a 12% rise to £56.2bn (€64.5bn) in the final quarter of the year.

This is particularly significant when considering the raft of cash flow pressures that UK businesses have faced in that time and suggests that, by releasing capital against the value of a range of business assets, firms are better equipped to combat challenges and seize new business opportunities.

Pie chart showing how, of all industry sectors, manufacturers made the most use of ABLThe statistics also suggest that international opportunities are growing, with businesses using import factoring recording 43% sales growth, the largest year-on-year increase. This was closely followed by export invoice discounting client sales, up 39%.

Sales increases were also noted in businesses using domestic factoring, up 6%; and in invoice discounting, up 11%.

Recent research by Bacs Payment Services revealed that more than £24bn is owed in outstanding payments to SMEs at any time, so it is encouraging to hear that uptake of debtor protection is rising. ABFA figures show a 23% increase in client sales for non-recourse asset based finance facilities, which incorporate debtor protection.

An additional benefit for invoice finance clients is that their customers appear to pay them more quickly, demonstrating the benefits of having an external dedicated and expert credit control resource provided by a factoring company.

Indeed, factoring clients’ Days Sales Outstanding (DSO) improved by 1.8 days from 59.2 to 57.4 days in the 12 months between the final quarter of 2009 and the final quarter of 2010.

These results are a reminder that flexible and affordable cash flow solutions are available. Client sales have risen in six of the last seven quarters, while the annualised data for 2010 revealed an 11% increase in client turnover to £212.2bn. This indicates that, as far as invoice finance clients are concerned, finances are heading in the right direction.

This is despite the news that lending under the Enterprise Finance Guarantee scheme fell by a further 31% in the fourth quarter of 2010. UK banks released only £99m in the final three months of 2010 under the scheme the lowest figure since the initiative was introduced.

Conversely, advances made by the ABFA’s members to clients rose by 8% to £14.9bn between the final quarter of 2009 and the final quarter of 2010. Of this figure, advances against debt in pure invoice finance facilities increased by 9% annually.

Meanwhile, advances against plant and machinery rose 88%, and stock 21%, demonstrating that funding remains available against a range of business assets, depending on a business’ individual requirements and circumstances.

Table showing how ABL supported sales growth of 11% among its users during 2010

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