Advances against plant and
machinery were up sharply, writes Evette Oram.
quarterly statistics from the Asset Based Finance Association
(ABFA) demonstrate the benefits of targeted cash flow support in
the current economic climate.
Asset-based finance clients have
seen an increase in sales of 11%t o £54.4bn (€64bn) for
the third quarter of 2010 compared to the same period
in 2009. The largest rise was in sales of export invoice
discounting clients, up by 49% year-on-year.
Non-recourse facilities, whereby
the facility has the shield of credit insurance and the debt is
funded past the usual recourse period, rose by over 20% while
domestic factoring clients and invoice discounting client sales
rose by 10% over the same period.
In fact, clients’ sales have
increased in five of the last six quarters, suggesting firms using
invoice finance are outperforming the wider economy as increased
cash flow enables businesses to secure new contracts without
increasing their debt.
These findings are reflected in
Hilton-Baird’s SME Trends Index, which revealed 50% of invoice
finance clients recorded a rise in turnover in the six months to
November compared to just 41% of the total 717 respondents.
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In addition, while 64% of 640 won
new contracts during this time, this figure was as high as 75%
among invoice finance users.
Total advances made by asset-based
lenders rose by 4% annually to £15.1bn in the third quarter – the
highest figure recorded since March 2009 – demonstrating the
availability of ABL funding to assist businesses throughout the
Of this, advances against debt in
pure invoice finance facilities rose by 9% and advances against
stock by 4%.
However, advances against plant and
machinery rose by a staggering 110% year-on-year. ABFA’s statistics
demonstrate the increased opportunity to secure funding against
assets through an asset based finance facility, incorporating
funding against the debtor book.
Indeed, the manufacturing sector
has particularly benefited from ABL with 31% of total ABL clients
In unpredictable economic times,
late payment and bad debt are real threats to businesses and so
invoice finance can help protect businesses with targeted cash flow
Over the last 12 months, clients’
Day Sales Outstanding has fallen from 59.8 to 58.6 for factoring
clients and from 58.5 to 56.2 for invoice discounting clients.
Invoice finance also encourages
good business practice, in particular sound credit management and
the monitoring of debtor creditworthiness; while only 46% of
Hilton-Baird’s SME Trends Index respondents performed credit checks
over the last six months, 75% of invoice finance users did so over
the same period.
The figures provide compelling
evidence of the benefit of ABL in negotiating unpredictable trading
conditions. When you consider the economic conditions that business
owners have had to come to terms with over the past year, it’s
hugely encouraging to see that many invoice finance clients are
seeing improved sales.
The importance of a healthy cash flow cannot be underestimated,
which is where asset-based finance solutions excel. It is
imperative owners consider further cash flow support in 2011, as
businesses feel the effects of the government spending cuts and an
increase in VAT.