The old adage of ‘cash is king’ has never been more relevant than in the current downturn where businesses need to redouble their focus on strengthening liquidity in order to consolidate trading positions.
Companies looking to mitigate future risk or even gain a competitive advantage are looking for funding packages which improve cash flow.
In this climate Asset Based Lending (ABL), which includes factoring and invoice discounting, has come to the fore due to the flexibility it offers businesses of all sizes, from SMEs to multinationals.
By drawing on existing assets such as a firm’s sales ledger, plant, property or stock, ABL is an effective way to quickly inject funds into a business in order to provide rapid access to working capital.
One significant benefit is that facilities are regularly reviewed and can be quickly scaled up to meet a firm’s exact requirements, enabling them to move quickly to tackle challenges or seize new opportunities.
The best ABL lenders adopt a relationship-led approach, using their experience to guide management and tailor facilities according to the individual business’ assets, trading history, current requirements and future strategy.
It’s this flexibility which has seen ABL move steadily into the mainstream finance arena over a number of years and the current economic climate has accelerated this trend.
Figures from the Asset Based Finance Association (ABFA) show that the total value of ABL advances in the UK for the four months to the end of September 2008 totalled £17.6 billion, a 15 per cent rise compared with the same period in the previous year.
As a result of increasing concern about customer insolvency and the huge negative impact it can have on a business, an increasing number of companies are also including debtor insurance policies in their package of ABL facilities.
These agreements ensure firms receive payment of outstanding invoices should a customer become insolvent and protect against the full impact of a bad debt on cash flow.
In a challenging economic environment, the ability to closely manage and control capital is a necessity and ABL is a proven tool to ensuring cash flows during these testing times.