We all know that SMEs are the engine of the UK economy. The weakest two parts of the recovery are productivity and export and finance can help bring both up to speed. But for SMEs to continue to grow they need better access to finance. Nowadays the banks aren’t providing it, so who else can SMEs turn to? Factoring and Invoice Discounting providers are readily available. Yet the cost is very high: businesses are losing profit from their services which inevitably hinders growth. The process is clunky and restricts access to other funding. Directors are forced to take out unwelcome Personal Guarantees that muddle the process even more. This is not what SMEs who are running flat out in order to grow need. They need dynamic, flexible finance that offer bespoke solutions to their requirements.
That isn’t to say there aren’t any positives at all to invoice discounting and factoring; it certainly improves a business’s cash flow whilst suppliers can still continue to maintain a direct relationship with customers. Yet the biggest drawback of invoice discounting is how difficult it is to escape from. Once a business enters an arrangement with a provider, they become reliant on the cash flow injection and the debilitating cost of the facility inevitably means they become hooked: it is no wonder it is referred to the crack cocaine of business finance.
Finance has been crying out for diversification and, fortunately, there are some alternatives to be found in the Alternative Finance sphere. “AltFi” is providing the finance that businesses actually need, the finance that’s appropriate to individual SMEs. Directors forced into invoice discounting by an inability to secure a term loan have been able to find a loan through platforms like Funding Circle or ArchOver, which allow them to plan ahead rather than be constantly tied down. At the other end of the scale, Platform Black and Market Invoice offer single invoice discounting which allows businesses to keep control of their invoices, improving the cash flow whilst continuing to grow. However, this does come at a cost. UK Exim provides SMEs engaged with import and export with order book trade finance.
This is the transformation that SMEs need, and the UK economy will benefit from it.