Invoice and Asset Based Lending Goes Mainstream

Venture Finance, the UK’s premiere independent Invoice Finance and Asset Based Lender with 20 years of helping thousands of businesses under their belt, just released a white paper on the evolution of invoice and asset based lending that is definitely worth a read. The white-paper, which resulted from a roundtable discussion among UK industry leaders in London late this summer, addressed the evolution of invoice and asset based lending and how it addresses today’s business needs in times of recession and growth.

Today, the UK Invoice and Asset Based Lending (ABL) Industry stakes a strong claim for a place at the commercial finance executive table, growing from £ 7.3B and 13,669 clients at the end of 1995 to £ 46.7B and over 46,000 clients halfway through 2009. This represents a strong, and consistent, growth in an industry which provides security and flexibility when compared with more traditional funding choices, which have proven to be quite fragile over the past 18 months as many banks called in loans and lines of credit with little, if any, notice as a result of the failure of the traditional banking system that started with the collapse of Lehman Brothers. According to research done by Venture Finance across 1,000 UK accounts, in the last year, 58% have had their clients refused credit from banks. As a result, payment times have increased to horrendous levels. Over a third of accountants are now suffering an average payment delay of 14 extra days, and over a quarter are now having to suffer an average payment delay of 30 extra days, which puts a tremendous strain on cash flow when you’re waiting an average of 60 to 75 days to have an invoice paid.

It’s important to note that ABL is not a new concept, having been around in some form or another for centuries, with a history that can be traced back to the glory days of Rome. A few centuries ago, in colonial times, it was common for British merchants to make use of factors to sell goods in the Americas. The industry has evolved significantly in the last 40 years. Whereas its modern beginnings consisted solely of basic factoring and invoice discounting forty years ago, in the 1990’s, we saw the introduction of true ABL that leveraged against stock and plant.

ABL is important because it provides value above and beyond traditional financing. This value includes:

  • direct link to business performance
    if your invoices are strong, so is your credit availability
  • flexible and responsive
    you can decide how many of your receivables you want to leverage, how much funding you want to ask for, and if your business improves, so does your credit availability
  • superior service levels
    in ABL, it is the norm to ensure face-to-face visits occur at least every six months in order to establish a productive and lasting relationship; this allows a relationship manager to pre-empt any upcoming issues in conjunction with the client and ensure that capital remains available; compare this to the banking industry where visits can be yearly at best from a manager with a large client portfolio

When you consider that ABL has grown during the recession, and that it can take as many as 13 quarters for a full recovery if we use previous recessions as a guide, it quickly becomes clear that, for many firms, ABL is a much better financing option than the local bank. In other words, if you’re not doing it, maybe you should. If you’re in the UK, you can start with Venture Finance and if you’re in the US, you can start with The Receivables Exchange.

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