As the Midlands invoice finance community appeared to descend on Cheltenham, the week was notable for a budget where more seemed hidden in the detail rather than articulated in the Chancellors actual speech. What is getting clearer, is that politicians, of whatever ideological leaning, are in fact guided almost entirely by self interest and watching and listening to the majority of MP’s at Westminster is a depressing experience.
Specific to the world of invoice finance came the release of statistics up to 31st December 2015, these statistics come from the Asset Based Finance Association (ABFA) whose members are responsible for the vast majority of all Factoring (in the broadest sense) deals done.
There’s a lot of numbers to wade through but what is interesting and has been alluded to in previous blogs is that client numbers, in the vital £0 to £5m turnover range, are going backwards. As at 31.12.15 there were 35,326 businesses (with annual turnover in the £0 to £5m range) using ABFA member services. At 31.12.14 this figure was 35,470.
Given recent observations about client satisfaction levels, both from my own calls and reading survey results from assorted invoice financiers these figures are not only disappointing but surprising too. Reading some of the posts on LinkedIn suggests there are those who are bucking the trend and writing loads of new business but then again some LinkedIn posts may be a little ambiguous, i.e not true!
Least surprising news item of the week was The Bank of England’s Monetary Policy Committee’s decision to hold Base Rate at 0.5%
Enough of work related stuff, there’s a Grand Slam to win
This week has seen the conclusion of a deal involving a food business which made an initial enquiry some months ago. The business has annual turnover just under £0.5m and as at this week was owed by its customers £95k.
The business sells to a mix of customers and puts terms of ’30 Days’ on its invoices. If, and its a big if, customers all paid to terms the sales ledger balance wouldnt be £95k but would be nearer £40k. Its a reflection on the payment culture we have that this isnt the case and the actual balance of £95k points to an average collection period of over 70 days.
Until this week the business operated with the help of a bank overdraft with a set limit of £35,000. With the implementation of an invoice finance facility the bank has reduced the overdraft facility to £5,000 (representing the fact it has lost its major security).
The invoice financier released £62,000 and added to the bank facility the business now has accessed over £25k of additional working capital.
The additional funds will ease some critical supplier relationships and allow for business growth. The invoice financier will take over the collection job and over time it’s hoped the average 70 day collection period will be reduced. In this case there are clear benefits and the costs are offset in a quantifiable way. There are unquantifiable advantages and benefits too not the least of which will be that supplier relationships are to be repaired and built upon.
Next week the invoice finance world holds its annual conference in Birmingham, a bit of a departure from previous venues like Barcelona, Venice and Prague, but handy for me!
The highlight of the week undoubtedly was a trip on the Thames Rib Experience, a unique way of enjoying the remarkable sights of London from the Thames.
Independent commercial finance broker. Working with businesses since 1996.