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January 6, 2011updated 24 Feb 2020 2:37pm

Asset-based lending grows in double digits

The latest 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% over the past 12 months to £54.4bn (64bn)

By Evette Orams

Advances against plant and machinery were up sharply, writes Evette Oram.

Phot byline for Evette Orams is managing director of Hilton-Baird Financial The latest 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.

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 recovery.

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 being manufacturers.

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 support.

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.

Table showing how asset-based lending rebounded during 2010 after a tough 2009

Table showing companies with turnover up to £5m make up 85% of ABFA members’ clients, but 27% of total advances

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