The Truth About Bank Overdraft

There has been much talk in the press recently about the need to increase lending to UK businesses so we conducted a small survey in order to determine what was happening to bank overdraft lending to a random sample of 100 SMEs (Small and Medium Sized Enterprises).

The results were interesting. We found that 88% of respondents actually had an overdraft facility. Clearly the use of overdraft is far more prevalent than the use of invoice finance which I have previously estimated to be used by less than 1% of businesses, in many cases because the products are not well known.

We asked the SMEs to quantify the percentage of their sales ledger that their overdraft represented and the average percentage stated was just 2.6% of their debtor outstandings.

This is interesting as invoice finance could potentially unlock significantly higher levels of funding for some of these customers, with the ABFA figures to June 2010 showing pure invoice finance advances against debt to represent an average of over 42% of client's debtor outstandings.

We went on to ask the SMEs if they had seen their overdraft increase, decrease or remain the same over the last year. The result was startling, none of the respondents reported an increase in their overdraft, 39% reported a decrease and 11% said that their overdraft had now been completely taken away.

The opportunity to further support UK SMEs through invoice finance remains significant and still largely untapped.

Glenn Blackman MBA MCIM writes regarding invoice finance and related matters at: http://www.glennblackman.co.uk/. Glenn also shares research results through the UK Invoice Finance Research Group on Linkedin and is the Managing Director of Cashflow Acceleration Limited, a specialist invoice finance brokerage.