Sunday, December 11, 2011

Micro-Firms Urged to Consider Invoice Finance to Improve Cash Flow

The latest study from YouGov raises some serious questions over the availability of credit for the UK's one million micro-firms, with one in four worried their business could fold in the next two years. Accounting for more than 90% of the UK's businesses, micro-firms - classed as a business employing less than ten people - are undeniably the engine of the economy, which makes it even more important that they are given the support that's necessary in order to secure their financial stability.

The challenges facing them are vast, but more than one in three said they found it harder to fund their business over the past 12 months, with one in five saying their bank accounts are empty. Access to credit is a lingering problem for smaller firms in particular, as demonstrated by the Bank of England confirming the UK's banks failed to meet their lending targets to small and medium-sized firms by £1.1 billion in 2011 under the Project Merlin initiative.

The government hopes its replacement, the £20 billion National Loan Scheme Guarantee, will fill the void by reducing the cost of borrowing for small businesses, but the biggest issue remains the willingness of the banks to lend to SMEs through traditional funding such as bank loans and overdrafts.

Indeed, only 2% of the 1,000 micro-firm owners surveyed are looking to secure a bank loan for their business in 2012, with the majority relying on personal savings, credit cards and loans from family and friends to fund their activity. This is simply unsustainable.

We therefore urge business owners to look at more suitable and flexible options to improve cash flow that are available to even the smallest of firms. The volume of funds advanced through asset based finance facilities has risen in each of the past seven quarters according to the Asset Based Finance Association, with 83% of its members' clients turning over less than £5 million.

Facilities typically include a core invoice finance facility which advances up to 90% of an invoice's value within 24 hours of its issue to overcome the cash flow gap associated with trading on credit. This provides the access to credit that is required to secure new business opportunities and early settlement discounts, whilst a dedicated sales ledger management service can also be incorporated to remove the credit control burden on your business through factoring.

Bad debt protection can also be added and, depending on your requirements, facilities can be extended to release cash against the value of other business assets including stock, property, plant and machinery.


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