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The latest figures from the Asset Based Finance Association (ABFA) show that this form of corporate funding continues to grow and dominate the funding market with advances totalling over £17.6 billion in quarter three of 2008, a 15% growth from a year ago.
However, the fragile state of the economy is evident, with credit protection payments rising by a massive 92% year on year. In turn the number of companies that have been provided with funding against stock has also spiked upwards, rising by 141%, as firms look to maximise value from products and hard assets in the face of slowing customer demand.
In further research released today by the ABFA and finance broker, Hilton Baird, it seems that corporate sentiment remains firmly tied to the current economic downturn, with 62% of SMEs surveyed predicting it will be at least 1-2 years before the economy improves, with a further 17% believing it will take 3-4 years.
The time it takes for invoices to be paid is also extending, with average debtor days lengthening, according to the research. Twenty eight per cent of SMEs are reporting this as 40-49 days, compared to 23% reporting the more normal period of 30-39 days. The vast majority of firms are still also classifying very little of their orders as a bad debt (81%), however, significantly 9% are classifying 5-10% of their debtor books as a bad debt. This indicates that while most companies are continuing to grow and trade, external pressures are having an impact.
Small firms are also feeling hard done by when it comes to government assistance, with 33% of SMEs stating they would like to see more protection offered to them rather than larger corporations. Thirty four percent of SMEs are also keen to see a further stimulus for the housing market, suggesting that the widespread property sector crash is now not only affecting consumers but businesses too.
More optimistically, a surprising 62% of SMEs questioned have already put in place a dedicated strategy to maximise business opportunities once the upturn does arrive, suggesting that business confidence hasn't completely ebbed and that companies are keen to look forward.
Kate Sharp, chief executive of the ABFA, said : "Generally our industry is coping very well with the effects of the down-turn, with significant capital still being advanced and a healthy year on year increase of 10% in terms of total sales. Indeed, asset based finance is one of the most important forms of corporate funding now for firms. However, companies are undoubtedly seeing the effects of the downturn in the economy, and this is particularly born out in our new research specifically for SMEs.
"The results show that many of them are pessimistic about the immediate future; with tightening credit conditions, debtor days lengthening and increasing bad debts, SMEs are looking for help. While many of them are having problems with liquidity, asset based finance has recently become one of business's more popular options for funding, providing an alternative to traditional funding such as bank overdraft and other forms of asset finance."
To view the full report on the statistics for Quarter Three 2008 please click
here.