Invoice Finance – last resort for businesses in trouble?
Martin Bennison, Sales and Marketing Director, discusses why in challenging times this perception makes it presence felt.
For some, you will be nodding in agreement, others like me will be crying out how outdated this perception is. In recent decades, independent finance providers who committed to driving awareness of the flexibility and effectiveness of Invoice Finance, can demonstrate through clients’ stories how it has made THE difference. Not only to their survival, but to firmly put them on the path to growth. Why then during challenging times does this perception makes its presence felt once more?
The myth was borne because some banks have always driven businesses to overdrafts as the first port of call. However, if the client had experienced financial issues or did not meet their ever- changing lending criteria, then banks offered Factoring because holding the book debt as security provided them with additional comfort. So why now?
Insolvencies have risen to over 22k in 2023 (a 20% increase on 2022 and 47% on 2021) as UK businesses navigate stormy seas. Rising inflation, interest rates, energy costs, and wages coupled with ongoing economic and political uncertainty have all had an impact. In turbulent landscapes, lenders can become more cautious and perhaps less willing to lend as freely as they would in good times. There’s a feeling that the Banks’ lending criteria has become more rigid with doors half closed, forcing UK businesses to consider other options, and fuelling the perception that Invoice Finance is the second-choice option.
However, 35,000 businesses enjoy the benefits of Invoice Finance, and the banks consider it to be a primary source of mainstream funding. Post 2007, they changed their lending criteria and encouraged businesses to use Invoice Finance because it offers a more flexible cashflow solution based on real time performance. Despite this, in some quarters there still appears a reluctance to embrace this popular form of finance which in some part, may be due to a lack of understanding as well as lingering out of date misconceptions.
Invoice Finance is a popular and effective funding solution. The facts speak for themselves. In 2022, Factoring or Invoice Finance and Asset Based Lending as it is more commonly known today supported over 35,000 UK businesses and £314 billion of client sales, up from £276 billion in 2021 and exceeding the previous record of £288 billion in 2018. The increase was due to the average client’s turnover increasing by 14% from £7.9 million to £9 million. When compared with UK GDP which grew by 4% in 2022, it appears that businesses supported by Invoice Finance have grown more significantly than the wider economy. In 2022, £21 billion was advanced to UK businesses to support their businesses compared to £8.9 billion in overdraft lending. This doesn’t sound like a funding solution for businesses who are failing it sounds like one which facilitates ongoing growth.
We can see evidence of this via the clients we serve. Our Strategic Finance proposition supports clients seeking facilities in excess of £5 million and we have provided packages that include an invoice finance facility where we are providing capital against the book debt. In addition to this, the solution will most likely include some form of Trade Finance facility – either via a purchase order or a revolving stock facility.
The aim is to provide scalable finance for businesses with ambitious growth plans. At Pulse Cashflow we are committed to providing invoice finance to a wider and more diverse set of businesses than ever before and are proud that for 16 years we have been enabling UK firms to access a viable funding solution to help their business grow. Our core market is the provision of invoice finance facilities to businesses looking to access funding from £250k to £5 million and demand in this market segment continues to grow.
Unlike many funders we look at each deal on its own merit. Our funding decisions are principally based upon the quality of book debts, systems, and management. We spend time upfront understanding our client, their business, and their customers. Our knowledge and experience mean that we can help businesses who may have challenging situations, to benefit from a flexible and personal approach. We believe in transparency which means that there are no hidden surprises, and our clients benefit from working with a dedicated and service focussed team. Our Client Managers have small client portfolios (of less than 20 clients each) to look after, ensuring fast decisions so that our clients can access the funding they need when they need it. If you have clients looking to support growth, Invoice Finance should be your first choice!
