Jonathan Myerscough discusses the rise in popularity of Invoice Finance solutions

“Asset based finance, which includes asset based lending and invoice finance, has grown over recent years to become a mainstream source of working capital and growth finance for companies of varying sizes in the region.

“The rise in popularity of asset based finance solutions is predominantly down to their flexibility and the speed at which they allow firms to capitalise on market opportunities by freeing up additional capital.

“However, the growing number of asset based finance success stories is, in itself, attracting more entrepreneurs to these facilities. In 2011, industry growth is likely to continue as the profile of asset based finance grows, and businesses’ need for flexible and accessible funding continues.

“One of the key draws to asset based finance for young and established businesses alike is that the amount companies can borrow corresponds directly with their own growth. In invoice finance, for example, the more sales a firm accumulates, the more it can borrow against its issued invoices. This means that growth remains uninhibited by the need to raise finance to service large contracts – the company can simply continue expanding at its current rate.

“Another contributor to asset based finance’s popularity in the present market – for start-up enterprises in particular – is its reduced reliance on personal security in comparison to traditional sources of funding. Businesses on a sound financial footing can access capital based on their sales ledger or assets, without having to secure finance against their personal assets.

“Asset based finance also provides a number of practical benefits. Improved cash flow means that businesses can commonly pay their invoices more quickly, leading to better credit terms from their suppliers. In turn, the company can pass these benefits onto its own customers, extending payment terms in exchange for higher rates. In both cases, the asset based finance customer benefits.

“While different types of asset based finance suit different models, there is generally an applicable source of funding for every kind of business, from start-ups through to major corporates.

“However, it is essential for firms to tread carefully when choosing a funding partner, as chasing invoices – commonly the role of the provider of a factoring facility - is a sensitive matter which requires the utmost professionalism. It is vital that companies choose a well established finance provider in order to protect their own reputations.”

Jonathan Myerscough, associate director, business development, Lloyds TSB Commercial Finance in the West Midlands