This article was first published in the February 2011 Ireland edition of Accounting and Business magazine.
Figures released recently by ISME have shown that Irish SMEs are no longer approaching traditional lenders for access to credit because of fear of refusal. With 33% of Irish SMEs surveyed by ISME late last year having been refused credit, invoice finance is now proving a crucial means of accessing funds. ‘The Irish invoice finance sector is increasingly seen as a normal finance option for businesses looking to source credit,’ according to Graham Byrne, director, Bibby Financial Services (BFS) Ireland.
‘Unlike traditional lenders, invoice finance providers can offer clients quick decisions and a flexible funding and collections service along with the option of protection of bad debt. Many accountants advising clients seeking finance solutions are now highlighting the benefits of invoice finance to not only manage cashflow to meet staff wages and supplier payments, but to enable strong growth in their business’.
The Asset Based Finance Association (ABFA) recently noted the invoice finance sectors’ growing influence at an Irish members meeting. ABFA highlighted how the invoice finance sector is playing a crucial role in funding both domestic and international trade and in the general provision of working capital to Irish SMEs in a new business landscape. ‘The Irish and UK invoice finance markets are alike in that invoice finance was once perceived as a temporary measure to overcome common obstacles such as customer late payment and issues with cashflow. However, with the tougher lending conditions experienced both here and overseas, this perception has changed with some economists suggesting that the trend is more permanent and will lead to a transformation of the UK finance sector, which will most likely have a knock-on effect on the Irish business finance sector,’ says Byrne. ‘Businesses are increasingly aware that there are other finance solutions and are looking at alternative finance options which better suit their needs’.
Brian Crowley, group managing director, TTM Recruitment, has used invoice finance to expand his medical recruitment company. ‘Having worked in the UK for numerous years, I was aware of the benefits of invoice finance and the flexibility it offers. At the time, penetration of the service was relatively low in Ireland but this has changed in recent years. The mindset is changing, Irish businesses are now realising that there are alternative options out there to help manage company finances. The reliance on old-school methods in the form of overdrafts or traditional loans is just not viable anymore’.
Invoice finance is now increasingly seen as the ‘new normal’ finance solution as Irish businesses are bypassing traditional lenders for more flexible options better suited to the ongoing tougher economic climate. Steve Box, chairperson of ABFA (which represents invoice finance providers based in Ireland and the UK) says that, at a time when businesses are finding that ‘their markets are changing, their customers are changing and they are looking into unfamiliar territory’, invoice finance can allow businesses to focus on winning new customers rather than ‘worrying about cashflow and getting paid.’
Interestingly, invoice finance is now seen by some as not just a viable finance option for the climate we’re in, but beyond this too. Byrne comments: ‘Invoice finance is ideally suited to fast-growing SMEs. The principal advantage, which attracts businesses, is that it can speed up cashflow by providing an immediate and then ongoing source of funding against the value of customer invoices. In addition, by offering a comprehensive credit management facility, the time lag between issuing an invoice and receiving settlement can be eliminated, releasing cash tied up in outstanding customer invoices, whether raised against domestic or overseas trade’.
Commenting on how financial advisers now perceive the service, he says that ‘our experience is that accountants are aware that the negative associations once linked to invoice finance no longer exist and are making clients aware of the options open to them in this tough climate. As a result, invoice finance is being accepted as a genuine alternative to the traditional funding solutions provided by the mainstream lenders.’
Working for your client
Byrne concludes there are a number of compelling reasons why invoice finance is more responsive and more flexible than bank loans and overdrafts:
- Cash can be accessed once a client issues an invoice – making financial planning more predictable.
- It can reduce the time and resources spent on credit management and collections for businesses.
- It improves cashflow, resulting in better supplier terms and more funds available for business growth activities.
- Many invoice finance providers offer bad debt protection, mitigating the impact of bad debt.