ABFA News
Irish Sunday Business Post – The Low Down
20 September 2015
Deirdre Moore, Chairperson of ABFA Ireland and Head of AIB Commercial Finance Limited
Often, the biggest limitation in the growth of a business can be the company’s ability to access finance immediately. In some cases, debtor balances are the company’s biggest asset on the balance sheet. This, however, means cash is tied up and coming in at a slower rate. With this in mind, more and more companies are now using Invoice Finance as a means of accessing funds to fuel their growth.
For a business looking to capitalise on a growth opportunity, being able to rapidly raise and deploy funds can give you a vital edge over your competitor. One of the key strengths of Invoice Finance is that as client companies grow, the funds available are also growing in parallel. So, in addition to an immediate cash injection, Invoice Finance offers businesses an ongoing source of funding linked directly to sales. As the economic recovery hits its stride, having funding that automatically expands with your business is a significant bonus.
Over recent years many companies have experienced an increase in late payment with the generally agreed credit terms of between 30 and 90 days being extended far beyond these terms. This places significant pressure on cash flow and, with less access to other more traditional finance options, businesses have faced continued financial challenges. Invoice Finance has become the smart funding option for these businesses to release much needed cash flow during the difficult trading conditions of the past number of years.
There are two main types of funding within Invoice finance. Invoice Discounting and full service Invoice finance, which can also be known as factoring. Both allow businesses to release the working capital tied up in their debtor books. In both, the finance provider will normally purchase the client’s outstanding invoices, providing an immediate initial payment of the majority of the invoice, with the remainder (less the financier’s fees) paid to the client on payment by the debtor. Full service Invoice Finance incorporates an added service element, with the financier normally managing the credit control and collections process. This makes it particularly suitable for smaller businesses. In an invoice discounting facility, the client continues to manage its own credit control. The majority of the funding currently provided by the industry in the UK and Ireland is through Invoice Discounting facilities.
While we are seeing more and more businesses of all sizes and types taking advantage of Invoice Finance to fuel their growth, companies with a turnover of up to €5m now account for nearly half of all funding advanced. In fact, €544 million in Invoice Finance was being advanced to Irish companies with a turnover of up to €5m at the close of the second quarter of 2015 according to the latest figures from the Asset Based Finance Association (ABFA), the body representing the Invoice Finance industry in the UK and Ireland. This is a steady increase for companies in this turnover bracket, with the figure rising from €480m at the end of Q4 2014 to €500m at the end of Q1 2015 and now registering €544m at the close of Q2 2015.
Funds advanced to companies registering a turnover of between €1m and €5m showed the sharpest rise at the end of Q2, increasing from €276m to €313m to demonstrate a growth of 13.5%. As well as indicating that more mid-tier companies are now using Invoice Finance, the figures also indicate that these companies are now looking to unlock more funding to support their growth. Larger companies are also using Invoice Finance, with €444m advanced to businesses registering a turnover of €25+ million.
An average of €1.2bn in Invoice Finance is in use by Irish companies at any one time while the total funds approved reached €3.1bn, up 2 per cent on the same figure for 2014. This means that there is plenty of funding available for businesses that wish to grow.
The figures also indicate more diversity than ever before in the types of businesses being supported by Invoice Finance, with a particular increase in the number of Irish manufacturing and distribution companies utilising Invoice Finance in Q2 2015. Other sectors utilising Invoice Finance include Services, Transport, Retail and Construction.
Invoice Finance has evolved considerably over the last thirty years and now has a deserved reputation of delivering for businesses during periods of growth and also through challenging times. The ABFA represents the industry in Ireland and the UK and works closely with other organisations around the world to raise the profile of Invoice Finance and asset based lending. It sets and enforces standards within the industry, informs and engages stakeholders outside the industry, and provides education and training.
