Invoice financing for smaller firms rockets to £711m
THE amount of money advanced to the UK’s smallest firms through invoice finance has soared, according to the Asset Based Finance Association.
ABFA chief executive Jeff Longhurst said small businesses borrow against unpaid invoices for growth plans, to expand order books and to boost cashflow in order to help manage the risk of bad debts.
Such financing has risen in the face of the reluctance of conventional lenders to lend money to small firms. Following the Brexit vote, it has also proved an attractive way to hedge against currency fluctuations.
The ABFA, which represents the industry in the UK and Ireland, said lending reached £711million in the first quarter of 2016, a 63 per cent rise on the £435 million for the same period in 2015.
It claimed the amount advanced was the highest year-on-year increase ‘since the recession’.
Smaller businesses using invoice finance received an average of £52,000 in the first quarter, up from an average of £32,000 in the same period in 2015. About 80 per cent of asset-based finance is invoice finance, while the rest is asset-based lending, in which in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property and machinery. Following the EU referendum, Bibby Financial Services, the UK’s leading invoice finance specialist, has seen a rise in enquiries, according to managing director Mark Lindsay. He said: ‘A lot of people are asking how we feel the markets are likely to move because they are now looking to react to the market volatility around exchange rates and uncertainty around international markets.’
One business Bibby is working with is 30-year-old cosmetics firm Badgequo, based in Keighley, West Yorkshire, which imports its products from China and then sells them to UK retailers as well as to 20 markets on the Continent.
Ahead of the Brexit vote, Bibby worked with Badgequo to fund a large purchase from its supplier, providing protection for the business from currency volatility.
This deal allowed the business to secure rates through to December, providing security and certainty to its planning and forecasts. It has also been able to lock in a euro rate as many of its products are sold across the EU.
Badgequo managing director Kai Arter said: ‘We have a substantial facility in place with Bibby and that covers trade financing, for buying the stock in from the Far East from our manufacturers. But it also covers currency facilities. We buy dollars forward and we sell euros forward. So really it gives us the opportunity to protect our margin as we would do anyway under the normal course of business.’