As large banks retrench from trade finance and with The World Bank now predicting a global recession, new data from online invoice auction platform MarketInvoice has revealed that British exporters and international companies are now turning to invoice auctioning to solve their short term funding problems.

MarketInvoice has now moved into international invoice auctions and trade finance and is opening a liaison office in Hong Kong. MarketInvoice HK Limited will now help foreign SMEs solve their short term finance problems, as international credit conditions for SMEs tighten.

Data from the site has revealed that SMEs that deal in exporting goods and services to the likes of Europe, America, the Middle East and Japan have turned to invoice auctioning, with the site now attracting global buyers from afar afield as Russia, Singapore and Switzerland.

In 2011 several Hong Kong companies approached MarketInvoice to use its service as they export into large UK supermarkets and retailers such as Morrisons, Arcadia, Amazon and Homebase.  One Hong Kong company has now auctioned over £800,000 in invoices to date and is forecast to auction between $4 – $5 million of invoices via MarketInvoice this year alone as UK retailers’ take up to 45 – 90 days to settle payments. Companies in Hong Kong have also found it difficult to obtain bank loans without pledging large collateral and personal guarantees. It was against this backdrop that MarketInvoice saw an opportunity to expand and help SMEs abroad with the working capital needs for their trade links into large UK corporates.

Anil Stocker, co-founder and director of MarketInvoice said: “Our core offering  is still very much for UK SMEs with UK customers, and with the latest official figures indicating we are now entering a new recession, we anticipate that UK SMEs will rely more heavily on invoice auctioning as banks tighten their lending criteria.

“However, we simply couldn’t ignore what our data was telling us. We regularly run auctions in pounds, euros and dollars but we were finding increasingly that foreign companies, particularly several in Hong Kong who export in to large UK retailers were turning to us for help. This shows that the problems that UK SMEs are currently facing are also being faced globally. Our customers are telling us that banks in Hong Kong in particular are asking for huge guarantees to secure loans, which a lot of SMEs just can’t give. It was for these reasons that we saw an opportunity to expand our offering and set up a Hong Kong office. With a very real fear of a global recession we know that international SMEs will have as much a tough year as UK SMEs.”

As the Bank of England warns about tightening wholesale finance conditions, data from online invoice trading platform MarketInvoice has indicated that larger companies have now started to look for alternative means of short term working capital funding. The online invoice trading platform for growing SMEs, saw a record month in December 2011 with over £1 million channelled to 50 registered companies. This takes the total volume of finance channelled to SMEs via its online platform to over £3.8 million, just 11 months after MarketInvoice launched in February 2011.

Over 100 invoice auctions have been successfully funded since launch, with capital coming from institutional investors, family offices, asset managers and high net worth individuals. The largest single auction of £334,000 was successfully closed in the last month, with the funds for this auction being provided by a pool of nine professional investors simultaneously.

SMEs are still finding it difficult to raise working capital in the current economic climate, with last week’s Bank of England Credit Conditions Survey indicating that in the three months to December 2011 the availability of credit to small and large businesses largely remained unchanged from the previous quarter. The report also revealed that where traditional funding is available to SMEs, it is increasingly expensive and its terms are onerous which results in it being less effective as a tool to help owners run and grow their businesses during these tough economic times. Against this backdrop, in the last three months alone, data from MarketInvoice has indicated an in increase in the average size of companies wanting to make use of the invoice auction platform as a complement to traditional funding lines. These businesses come from a wide range of sectors, and, with revenues between £10 and £25 million, are all seeking balanced growth out of the recessionary environment. .

Anil Stocker, Co-founder and Director of MarketInvoice says: “Invoice auction volume is growing hugely at the moment, and the companies that are looking for alternative forms of short term funding are coming from diverse UK business sectors, including services, manufacturing, and construction, as well as many UK exporters. Interestingly, over the last few months we have seen a shift in the size of companies looking for short term funding, with an increasing number of larger companies looking to raise flexible capital when they most need it. With traditional methods looking increasingly expensive and onerous, and smaller businesses also struggling with late payments as their customers often now take between 60 to 90 days to pay their invoices, we expect this trend to continue well into 2012.”

“Importantly, the Coalition Government is beginning to take notice of next generation finance platforms such as MarketInvoice with Vince Cable recently announcing an industry-led taskforce which will examine the challenges business owners face in diversifying their finance sources, especially in looking beyond traditional bank products.”

Hilton-Baird Financial Solutions’ latest biannual SME Trends Index, which questioned 417 business owners and finance directors last October, has shown most respondents enter January 2012 more apprehensive about the future than they were in April 2011.

With late payment rife, order books down and the challenges involved in accessing traditional funding well-documented, only 31 per cent of respondents are expecting their business to expand over the next six months. Meanwhile, a worrying 20 per cent predict it will contract. Yet there was an underlying theme amongst respondents that the national media is largely to blame for the length and depth of the downturn due to its constant negativity.

Further analysis of the data confirmed that confidence is crucial, as one respondent summarised: “It would be helpful if all types of the media stopped spreading negative news. It is so depressing when it is all doom and gloom. If people feel there is hope, everyone can face the future with a more positive outlook. Now there is never any good news – everything is talked down.”

Such negativity can become a self-fulfilling prophecy that has a detrimental impact on businesses and their future investments and outlook. Given that the independent Office for Budget Responsibility has downgraded its economic growth forecast for 2012 to just 0.7 per cent, the chances of grim vision becoming a reality look increasingly likely.

This mindset has therefore resulted in business owners opting to hoard their cash rather than invest in their future, as one respondent reveals: “We should be recruiting more staff, but the economic outlook is so uncertain that we are holding back on all major decisions. If confidence is boosted, I expect strong growth for our company, if not we could be in for a very rough ride and all bets are off.”

The blame does not lie solely with the media however, with others instead highlighting limited access to funding – which is required to overcome businesses’ cash flow challenges – as a reason for the sustained downturn: “There is not enough money circulating,” explained another respondent. “Businesses are relying on bigger and bigger overdrafts where previously none were required. Small businesses cannot carry the financial burden of non-payment of bills while the banks are not prepared to facilitate credit to the level it is required.”

Managing director of Hilton-Baird Financial Solutions, Evette Orams, has urged businesses to take a thorough look at the wider options available to them: “It is clear that UK businesses – and SMEs in particular – are suffering from a distinct lack of confidence currently. This inevitably leads them to at least think twice, if not defer any decisions regarding investment in their business’ growth.”

She continued: “The difficulties firms have faced in accessing traditional sources of bank finance has served to exacerbate issues, but, by exploring other options available, owners can give themselves the best chances of growth and take measures towards safeguarding their long-term stability. Our survey found that 50 per cent of invoice finance users expected their business to expand in the next six months, demonstrating that by securing a more flexible and targeted cash flow solution businesses can set themselves up for growth.”

Independent commercial finance company IGF has published 10 New Year’s Resolutions that every small to mid-sized business in the UK should adopt as best practice in 2012.

Tracy Ewen, managing director at IGF, gives her rundown of the Top 10 New Year’s resolutions below.

“A new year is a time for reviewing what’s worked well and what needs to be changed for the year ahead.  With this in mind, here at IGF, we have published our New Year’s resolutions for the UK SME market, with a view to helping businesses succeed in 2012.”

SME New Year’s Resolutions

• Plan, plan, plan! Prepare cashflow projections for next year, next quarter and, if you’re on shaky ground, next week. An accurate cash flow projection can alert you to trouble well before it strikes;
• The key to managing cash shortfalls is to become aware of the problem as early and as accurately as possible. Financial services providers are wary of borrowers who have to have money today. They’d much prefer lending to you before you need it, preferably months before;
• Cashflow problems can often be self-inflicted. Companies which send out incorrect invoices often find that their customers end up returning an invoice and requesting a new one. Make sure all your invoices are correct before they’re sent out to ensure your customers have no excuse for not paying;
• Make sure you have a robust process for chasing up your invoices;
• Balancing credit terms vs cashflow needs is something many businesses struggle with. Be sure to tell your potential customers upfront about your credit terms – before you provide your product or service;
• Know your customers! Some of your customers will pay on time every time – others will be perennial late payers. The more information you have about the customer, the easier your payment collection process will be;
• Don’t always associate higher sales with better cashflow. If large portions of your sales are made on credit, when sales increase, your accounts receivable increase, not your cash. Meanwhile, inventory is depleted and must be replaced. Because receivables usually will not be collected until 30 days after sales, a substantial increase in sales can quickly deplete your cash reserves;
• Consider using an invoice finance provider. These are financial services businesses that can pay you today for invoices you may not otherwise be able to collect on for weeks or months;
• You may be able to raise cash by selling and leasing back assets such as machinery, equipment, computers, phone systems and even office furniture. However, you could lose your assets if you miss lease payments;
• If your cash flow has become stable and predictable, you can consider investing your excess cash. You can earn additional interest income, as well as have the necessary cash to dip into during tough times.

 

The amount owed to small and medium-sized businesses in late payments has reached an all-time high of £33.6 billion since the first late payments survey in September 2007, according to Bacs, the organisation behind Direct Debit and Bacs Direct Credit.

As well as the overall figure being up on the same point 12 months ago when it stood at £30.4billion, the new data also reveals the average overdue amount outstanding to SMEs is  a record £39,000 and – worse still – they are having to wait even longer to be paid than last year.

In total half of all UK SMEs – 861,000 firms (across the country), are currently experiencing late payments from customers with business owners saying they are waiting on average 28 days more than the original payment terms to have their invoices settled. As the majority of businesses work to a 30-day payment term, many are now waiting at least two months to get paid.

The worst offenders for paying late, according to the research, are large companies which are behind 48 per cent of SME late payment debt, followed by public/private companies at 20 per cent. Government and not-for-profit are among the best payers, with just nine per cent of SMEs experiencing overdue payments from this quarter. The hardest hit sector is retail and distribution which is owed £16.6billion.

The most frequent excuse businesses hear is that the hold-up is due to internal systems – 55 per cent say they are being told their invoice is waiting for authorisation with the same number hearing that the bill is being processed by accounts. But the old chestnut of “the cheque’s in the post” still crops up fairly regularly, with 41 per cent of businesses giving this excuse.

While late payment is understandably putting a strain on cash flow, it is also increasing stress levels of the business owner as one in nine (11 per cent) report that waiting for important payments makes them ‘very worried’ and leads to constantly checking to see if they have been paid. A further 13 per cent are worried about the consequences that late payment will have on their business.

Mike Hutchinson, head of marketing at Bacs, said the issue of late payments is damaging to businesses which are relying on good cash flow to keep going through the fragile post-recession recovery period.

He says: “The issue of late payment is continuing to get worse for SMEs in the UK at a time when they need to be able to plan ahead for growth and ensure a strong cash flow, but instead they are hanging on for payments which could have a serious impact on their business if they are continually late.

“As our research shows this issue not only hits the business but owners are reporting how it puts them under great stress personally, which has further negative repercussions.

“We urge SMEs to look at how many of the payments they are waiting for can be automated to help them assert more control over their cash flow, and hopefully alleviate some of that stress on the business and its owner.”

Philip King, CEO of the Institute of Credit Management, adds: “This latest research reinforces how important it is that all companies, and more particularly SMEs, agree payment terms upfront and work to cultivate a prompt payment culture in all of their business dealings – one that will benefit everyone concerned.

“More than 1,000 companies have already shown their commitment to a more positive payment culture by signing up to the Prompt Payment Code, but these figures demonstrate that more companies need to change their payment practices in order to combat the detrimental effect of late payment on small business.”