A report from the UK Department for Business and Skills has identified invoice finance as playing a “crucial role in securing access to working capital” for many businesses in the new economic environment.
The report, ‘Financing a Private Sector Recovery’, shows that the post-recession environment presents a vastly different business landscape to that of three years ago. Some economists suggest that it is not just a temporary change, but also a transformation of the business and finance sectors and urge businesses to adapt to this ‘new normal’. For many businesses – small and medium-sized enterprises (SMEs) in particular – traditional credit lines will remain reserved, with current research suggesting that as many as one in five small UK businesses are still unable to secure lending from their bank at present.
With Basel III regulations also threatening to impact on the cost and availability of trade finance – as trade finance is classed a high risk sector – many export businesses will need to begin to look to new financial services to support their liquidity and working capital needs, with some experts expecting a shift away from traditional finance in favour of receivables finance.
Steve Box, managing director of HSBC invoice finance (UK) and chairman of the Asset-based Finance Association (ABFA), said: “With many predicting an export led recovery in the UK, businesses will be finding that their markets are changing, their customers are changing and that they are now looking into unfamiliar territory. By accessing the expertise that factors can offer in finance, credit management and protection from bad debt, businesses will be able to focus on winning new customers and serving them, instead of worrying about cash flow and getting paid.”
As for a shift towards asset-based finance, Box believes this change is already under way. “The drive towards more capital efficient funding solutions and structured finance means businesses of all sizes are finding that they can usually generate more funding in a more efficient manner through the use of receivables, asset-based lending and supply chain finance services.”
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