Evette Orams of Hilton-Baird Financial Solutions says with the rise in late payments squeezing the cash flow of small businesses and having a knock-on effect across the supply chain, asset-based finance is well poised to help SMEs stay open for business
Access to finance and late payment are regularly cited as the two greatest threats to UK businesses in the current economic climate.
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While the latest Bank of England Credit Conditions Survey uncovered a £2.4bn decrease in bank lending to small businesses during the final quarter of 2012, research from Bacs Payment Schemes has found that £36.4bn is owed to SMEs in late payments.
This combination is, of course, stretching the cash flows of so many businesses to breaking point and demonstrating just how interlinked these two problems are currently. Without adequate funding in place, it becomes that much harder to meet day-to-day commitments and invariably leads to tough decisions having to be made. Unfortunately, delaying payment to suppliers is often the easiest method of preserving cash flow.
However a growing number of businesses are proverbially choosing to kill two birds with one stone.
This column has regularly highlighted the increasing role the asset-based finance industry is playing in supporting the country’s businesses, both large and small, with their cash flow requirements. This trait continues following the publication of the Asset Based Finance Association’s (ABFA) most recent quarterly statistics for the final quarter of 2012.
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By GlobalDataWhile the number of businesses using asset- based finance increased on an annual basis, by 3% to 43,000, the level of funding advanced to clients rose by 6% to £16.7bn.
Given funding against invoices is at the heart of asset-based finance facilities, users can therefore benefit from improved cash flow while avoiding the implications of waiting for customers to pay. Crucially, products such as factoring can also incorporate a sales ledger management service to remove the burden associated with chasing customers for payment.
These characteristics are proving particularly important given the results from the most recent Late Payment Survey conducted byHilton-Baird Collection Services, sister company to Hilton-Baird Financial Solutions, in January 2013.
The research found that the greatest consequences of late payment on businesses were that they had to spend more time chasing customers (73%) and pay suppliers later (48%), illustrating the knock-on impact that late payment can have throughout the supply chain. In fact, 30% of respondents said the most common excuse they receive for late payment is that their customers are waiting to be paid themselves.
It is therefore little wonder that the asset-based finance industry continues to grow at such a rate. With clients’ sales soaring by 13% between October and December on a quarterly basis – representing the highest rate since the beginning of 2009 – its extensive benefits cannot be ignored.
Evette Orams is managing director of Hilton-Baird Financial Solutions
