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August 2, 2019

Strategies for different corporate banking products

When looking into the best corporate banking products for your business, it's best to see how they can fit into company strategy.

By Christopher Marchant

When looking into the best corporate banking products for your business, it’s best to see how they can fit into company strategy and what each individual product offers. Below is a trio of corporate banking products and what they can offer.

Overdrafts

This is one of the most simple of corporate banking products, and for this reason one of the most overlooked. The payment of unnecessary overdraft fees can be a self inflicted blow for a small or moderate enterprise (SME).

According to the Financial Conduct Authority (FCA), in one year firms made over £2.4bn from overdrafts alone, with around 30% from unarranged overdrafts. More than 50% of banks’ unarranged overdraft fees came from 1.5% of customers.

In response to this the FCA introduced regulation that is stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts. In addition it is banning fixed fees for borrowing through an overdraft, requiring banks and building societies to price overdrafts by a simple annual interest rate.

Asset Finance

Asset finance is undertaken by businesses who do not wish to buy necessary equipment outright but instead choose to lease through a provider instead. This can be for a number of reasons, including preserving lines of credit with a bank, tax purposes, and not wishing to be beholden to a depreciating product.

From lorries to pizza ovens businesses need expensive hard assets to grow and thrive. Finance providers can give businesses access to this cash generating equipment immediately, and equipment finance can therefore provide a lifeline across a wide range of industry sectors.

Invoice Finance

Invoice finance can be a valuable asset for SMEs, getting much needed cash immediately from outstanding invoice while finance providers chase up the late payment, often for fees as low as 5% of the invoice. This can free up time and working capital for the SME.

London based fintech startup Hokodo has been awarded a €2m (£1.4m) grant by Horizon 2020, the funding programme for research and innovation run by the European Commission.

Awarded to Hokodo’s French office, the funding will enable the launch of its API-based invoice insurance offering in Europe, which it said could protect potentially millions of SMEs from unpaid invoices.

Conclusion

Businesses have a wide variety of avenues to explore when considering what are the best commercial banking products for them. With a steady approach to cashflow there is no reason not to spread expenditure through an asset finance provision. Invoice finance can also be a valuable tool to obtain funds immediately. Regardless of any forms of finance, businesses should always be attentive to everyday concerns such as overdrafts and basic business loans.

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