HAS A LACK OF BANK LENDING CREATED AN OPPORTUNITY FOR INVOICE FINANCE?

To answer this question I first turned to the Asset Based Finance Association's statistics to June 2011 and saw that they reported a 0% change in client numbers over the previous year. This suggests that even if an opportunity had been created it has not resulted in significant growth in invoice finance client numbers.

Anecdotal evidence, from the clients that we deal with through our invoice finance brokerage, does suggest that banks do not appear to be providing large amounts of new lending but similarly we have not seen a great number of cases of existing lending being removed. However, the former has to be viewed in the context of the level of demand amongst businesses for credit generally.

The Bank of England's "Trends In Lending Report" (July 2011) notes that "credit availability for businesses was broadly unchanged" although "demand for credit from businesses remained subdued", and "larger firms continued generally to be able to access bank lending" whilst the "opportunities for SMEs remained more variable". This does not seem an unexpected position within an economy that grew by just 0.2%* between April and June this year.

The opportunity for invoice finance has always been greatest where businesses are undergoing high growth and need flexible finance that will grow with their turnover. The level of funding available through invoice finance often outstrips that which may be available from bank lending in such circumstances, but these cases will be limited within the current economic conditions.

The other area of opportunity for invoice finance has been where businesses are struggling with their cash flow and need help to pay their creditors. One factor that takes effect here is the availability of Time to Pay Arrangements from HMRC. Whilst there have been some reports of a tightening up in the availability of such arrangements, there has not been a wholesale withdrawal of the scheme and understandably so in the current, delicate economic climate. Hence this has not increased the pressure on firms to seek help from invoice finance, to bridge the gap. Invoice finance is often available in difficult financial circumstances, such as these, when other forms of bank lending are not.

Generally SMEs seem to be "ticking over" and being more modest in their plans rather than being bold and seeking the funding to back their aspirations. Unless there is some change within the economy these conditions are likely to remain unchanged for some time to come.

Despite this outlook, there remains a lack of awareness of invoice finance amongst SMEs. In our recent survey of 100 SMEs, 31% of respondents thought that so few businesses use invoice finance because it is not promoted enough and/or businesses had not heard of it. The opportunity for the invoice finance companies remains to raise the profile of these products with SMEs to maximise the chances of businesses turning to invoice finance when they have a cash flow need.

*Source: http://www.telegraph.co.uk/finance/economics/8661562/UK-GDP-growth-live.html