Sharon Wiltshire, sales director at Bibby Financial Services East Anglia

With the availability of bank lending still a matter of controversy, SHARON WILTSHIRE of Bibby Financial Services East Anglia, highlights how invoice finance can provide an alternative solution for keeping control of your cash flow

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THE economic climate of recent years has resulted in businesses struggling to secure funding, with many financial institutions lacking the appetite to back small and medium-sized enterprises despite initiatives from the UK Government aimed at boosting funding to businesses, such as the Project Merlin agreement.

Sluggish growth in the economy and factors such as the rise in VAT at the start of 2011 meant banks were less inclined to lend money, and it also contributed to the caution felt by small and medium-sized businesses when approaching banks for funding and taking on further debt.

However, with bills, invoices and salaries still requiring payment and raw materials and new equipment to be purchased, a healthy and on-going supply of funds is integral to businesses survival and to realise ambitions for sustained growth.

With this in mind, more and more businesses in East Anglia are broadening their horizons when it comes to reviewing the finance options available to them.

According to the latest quarterly statistics from the Asset Based Finance Association (ABFA)* one form of finance which is increasingly being used by small and medium-sized businesses is Invoice Finance. This increase in popularity echoes our experience, with a twenty four per cent growth in client numbers in East Anglia during the past year, as more and more businesses use invoice finance to achieve a healthy cash flow and fuel growth plans.

: : What is invoice finance?

When you are running a business, cash is king. Of all the challenges facing small and medium-sized businesses generating cash and keeping it flowing can be two of the toughest. If your cash flow is suffering while you wait for your customers to pay their invoices, it may be appropriate to approach an invoice finance company.

Generally speaking, invoice finance takes two main forms. The first option for many businesses is factoring; a flexible funding and collections facility. Factoring helps to bridge the cash flow gap between raising an invoice and getting paid, giving businesses an immediate cash-injection and then an ongoing supply of working capital against the value of outstanding customer invoices as they are raised.

Using a factoring facility, businesses also benefit from the provider’s credit management and collections service, saving them valuable time, as the provider will chase and collect outstanding invoice payments on the firm’s behalf.

The other main option is invoice discounting; a flexible funding-only solution. Unlike factoring, the business maintains control of the sales ledger and continues to collect payments from its customers against outstanding invoices.

: :What does it cost?

There are two fees involved: The first is for the cost of the finance. This compares favourably with the cost of a typical bank overdraft.

The second is for the service you receive which on average is between 0.5% and 3% of annual turnover but it depends on the number of customers you deal with and the number of invoices you raise. Compare it against the cost of your existing credit control team and the savings you will make.

Never decide on cost alone, consider the quality of the service you receive and ensure you are comparing like for like.

: : Choosing a suitable provider

There are now in the region of 50 different companies offering invoice finance facilities in the UK, including bank-owned providers, independent companies like Bibby Financial Services and boutique firms which provide services for just one or two niche industries.

Typically, firms are introduced to a supplier through their bank, a broker, financial adviser or accountant. However, we are also seeing increasing numbers of businesses getting in touch directly with us to discuss whether invoice finance would suit their financial needs.

To help you choose a suitable factoring company to work with your business you should ask the following questions:

: : Are they a member of The Asset Based Finance Association (ABFA)?

: : What percentage of your invoices will be approved by the invoice financier and therefore funded?

: : Who will look after your account and do you have access to the decision-makers?

: : How will the invoice financier work with your customers? Will they communicate by phone, mail or both?

: : Are there any hidden charges?

Through the depths of the last recession we have seen from our almost 4000-strong client base just how important securing funding has been, not only in terms of businesses surviving but also in building for growth. Many firms like the flexibility offered by invoice finance as it can help them to manage the peaks and troughs most businesses experience, without having to renegotiate a long-term financial arrangement.

As a company that has the interests of small and medium sized businesses at heart, Bibby Financial Services will continue to support businesses in East Anglia with our flexible invoice finance solutions, helping the region’s firms play their part in driving economic recovery towards growth.