Tag: invoice discounting

Time to Break the Invoice Financing Habit

Author
Angus Dent
Date

Many SMEs automatically cover the gap between production and payment by using invoice financiers (IFs), which claim to advance between 80% and 100% of the value of each invoice raised, but on average advance only about 63%. This has been fuelled by the reluctance of the traditional banks to lend to SMEs, but virtually all businesses would be better off using one of the other forms of finance available.

IFs usually require personal guarantees and involve huge amounts of internal administration and complicated fee structures, plus the amount of available finance is unpredictable. When business is strong, a company will have lots of money sitting in its current accounts and when business is slow, and the company really needs it, the finance is not there.

Established businesses with strong order books are better off opting for reasonably priced fixed term loans, which are easier to obtain than many believe.

business-loan

For example, ArchOver offers a fixed term loan for up to two years, which can be rolled over for a further period if desired. This means the business always knows how much is in the bank and the same finance is available in slow times as in good.

These are secured against the insured long-term value of the debtor book and, as long as the value of accounts receivable stays above a certain level, the finance will remain the same. The loans are remarkably straightforward to arrange and no personal guarantees are required.

It is often said that IFs are good for start-up companies with no trading history or stable debtor book, and the amount of finance available grows as the company grows. Nonsense, these enterprises really need equity finance as growth in start-ups is never in a straight line and the problems of good and bad periods are even greater.

It is essential to look beyond IFs in all situations

To learn more about how ArchOver can help with your business needs, contact a member of the team today at 0203 021 8100.

How Alternative Finance is Transforming Invoice Discounting and Factoring

Author
Angus Dent
Date

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.

Demystifying Peer to Peer Lending

Author
Angus Dent
Date

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Following on from the two posts that explain equity and reward based crowdfunding, we move on to debt-based crowdlending, also known as Peer to Peer (P2P) lending, sometimes Market Place lending and in FCA speak as debt based investing. For brevity I’ll use P2P, although this is somewhat confusing as some of the borrowers are businesses, or P2B. A newcomer to alternative finance, whether it be through conversation or news, is more likely to have heard of crowdfunding, largely due to press interest in that specific area of FinTech and in particular the innovative crowd raises that businesses and individuals have employed. Yet in the UK, the P2P lending industry is worth just under £4.5 billion, compared to £132.5 million cumulative total raised through crowdfunding. Borrowers are attracted by a less clunky process that is competitively priced and easy to use. The vast range of alternative finance solutions available means that both businesses and consumers can find a loan tailored to their needs. Lenders, meanwhile, are drawn to the sweet spot of statistically lower risk investment at interest rates that go beyond the bounds of anything offered by a bank.

The P2P lending sphere can be broadly broken down into three categories: P2P consumer loans, P2P business loans and invoice financing. The biggest player in the consumer loans market is Zopa, who are the oldest and arguably the biggest alternative finance company in the world. They have lent over £1 billion to consumers at an average loan size of £7,500, offering investors a return of 5%. Every consumer loans company is only as good as their borrowers; Zopa have reported 0.04% actual defaults so far this year, a figure which is made even lower by the Zopa Safeguard Trust which helps pay-out in case of bad debts. The fund is taken from the fee that each borrower pays when their loan is approved. Another of the major P2P consumer lenders, RateSetter, have their own provision fund to help bail out lenders to borrowers who have defaulted. RateSetter operate a platform that allows lenders and borrowers to pair up through a process of bidding, over four set term lengths. The model has proved very popular with both individuals who appreciate the transparency of the loan structure and lenders enjoy decent interest rates. RateSetter also offer business loans in the region of £25k to £1 million.

demist

The business lending market is diverse for both investors and borrowers; loan size, terms, length, funding and structure vary from platform to platform. Just dipping a toe into the water in terms of range and variety, you can facilitate finance for property loans through Assetz Capital, Wellesley have their own listed bond that offer lenders 4.75% per annum over three years or 5.5% per annum over five, Folk to Folk specialise in regional lending in the South-West, Landbay secure lenders’ money against residential mortgages, MarketInvoice and Platform Black allow investors to access funds in outstanding invoices and factoring. The list goes one: the Best place to explore the full array of P2P operators and the services they provide is on the AltFi news website. The banks do not appear to have the will or resources to compete, despite their own admission that most of the platforms are supplying an updated version of services that they have provided for years.

Mitigate the risks and P2P Lending is a fantastic way to save wisely whilst helping SMEs and consumers drive UK economic growth. The incoming Alternative Finance ISA will bring in a whole host of new lenders; it is crucial that the industry is properly regulated and that platforms adapt sufficiently to ensure that the optimism continues.