It's time to look at solutions.
With many of the region's businesses reflecting on what this means for them, now is time to get the finances right. And it's the ideal time to look at financial solutions that can help free up cash flow. One such solution is invoice finance.
Last year witnessed a rise in the take up of invoice finance by companies across the UK. Year-end figures from the Asset Based Finance Association saw the number of businesses using members' services rise to over 48,000. The figures also show that during the first half of 2008, the industry advanced over pounds 17.3 billion against invoices, stock, property and other trading assets worth a total of pounds 31.2 billion, a growth of 15%, compared to traditional funding to private non-financial organisations that grew by just 13% over the same period.
As belts tighten in the North East and across the UK generally, businesses can benefit from invoice finance as they look to manage their cashflow in these challenging times.
Research from HSBC Commercial Banking has found that one in five small businesses reported suppliers are billing quicker and a further 20% said that fewer companies are currently paying within agreed payment terms. If firms selling to other businesses are struggling to maintain cashflow, then raising finance on their outstanding invoices, through invoice finance, could provide the lifeline that small businesses need. According to the Federation of Small Businesses, bigger firms are making smaller businesses wait more than 100 days before getting paid, yet the average debt turn around time for companies using invoice finance is just 58 days.
How invoice finance works:
The bank audits the business' books and accounts to establish that their sales ledger meets its criteria;
Where credit limits are required by the bank, the business and the bank agree how they will be handled;
Once the business makes a sale, they invoice their customer and send a copy of the invoice to the bank;
The bank pays the business a set proportion of the invoice value within a pre-arranged time;
The bank issues statements on the behalf of the business and collects payments;
The business receives the balance of the invoice (less charges) once the bank receives payment;
The bank provides regular reports on the status of the sales ledger.
Invoice financing can help firms which are short of working capital, as cash is released when orders are invoiced. Start-ups can also benefit from invoice finance where more traditional lines of funding may not be available to them. In a fast-paced business environment, invoice financing allows businesses to respond quickly and decisively to changing market conditions.
In addition, the ability of an invoice finance facility to protect the business against non-payment of debts and customer failure is also an important consideration. As part of its service offering, HSBC Invoice Finance has an internet-based credit protection service, which provides protection against customers' failure or non-payment.
Andy Dixon, HSBC Invoice Finance's business development manager based in the Team Valley commercial centre said: "Invoice finance can remove the headache of late payments and debt collection. And the comfort of knowing that profits are protected by our credit protection service gives real peace of mind both for clients starting up in business and for our more established clients where there may be significant exposure to certain customers. It is particularly important for our clients when there is uncertainty in the economy."
Invoice finance may be the right financial solution for businesses that:
Are selling business-to-business on credit terms;
Are looking to release working capital;
Have experienced late payment or bad debts;
Are looking to fund growth or acquisition.
Businesses looking for more information on how invoice finance could work for them can contact HSBC Invoice Finance on 0800 343435.
PEACE OF MIND Andy Dixon, Invoice Finance.