Invoice finance becomes mainstream funding for firms of all sizes and sectors
Over the past decade, invoice finance, which includes factoring and invoice discounting, has become a mainstream form of funding for firms of all sizes across all sectors.
The flexible nature of the product set means it can be adjusted to match a business’ performance. As the amount that can be borrowed grows directly with sales, the more trading success a firm enjoys, the more funding can be released and re-invested for growth.
It is suitable for a variety of scenarios which require strong cash flow such as M&A activity, refinancing, turnarounds and expansion capital, and it’s this flexibility and adaptability which has seen invoice finance become a key player in the business funding landscape.
Gaining a reputation for service excellence in the invoice finance industry however is not just about the straightforward lending of money.
The nature of invoice finance means that providers gain a deep understanding of a business’ strategy and are able to quickly react to funding requirements on a short, medium and long-term basis.
It is these factors that have led to many brokers, advisors and businesses seeing invoice finance as their principal form of funding where excellent service comes as standard.
Pioneering approach in service excellence
The pressure businesses found themselves under during the downturn highlighted the increasing requirement for funders to demonstrate their willingness to go the extra mile to support their clients.
To further underline its commitment to supporting businesses and providing service excellence, Lloyds TSB Commercial Finance recently launched a pioneering Introducer Charter for lawyers, accountants and brokers.
Ensuring that its contacts in the professional community can offer the best possible service to their customers, the Introducer Charter pledges to provide a refund towards cash flow forecast costs, and keep its business introducers fully updated on the status of negotiations at all times.
Lloyds TSB Commercial Finance also enhanced its Client Charter which now enables prospective clients with a turnover of up to £15 million to obtain an indicative lending decision within 48 hours and the funder pledges to match any competitive offer that matches it’s credit profile.
The most successful funders, which are regarded as providing service excellence as standard, are those that have invested in client management and retention, and take the time to understand a business’ individual needs.
Crucial to this is a strong regional infrastructure capable of getting close to clients, developing deep understanding of the business strategy and then having the autonomy to make swift, local credit decisions.
Only by being close to a client can a funder be well placed to pre-empt potential challenges or opportunities and maintain long-term, mutually beneficial relationships.
Lloyds TSB Commercial Finance recognises this and has made significant investment in developing a comprehensive national network of over 300 regional sales and client managers from 12 regional centres. This local presence combined with an underwriting mandate allows us to work closely with our clients and advisor contacts to facilitate quick and consistent service.
It’s this commitment to service excellence that companies actively seek from their funding partners throughout the economic cycle.
In tougher economic conditions, it is imperative to obtain the right advice and financing package, and firms looking to prosper and grow need a funder which understands their business strategy to assist with their expansion.
Capital for overseas expansion and exports
Providing tailored support throughout the lifecycle of a business is recognised by most invoice finance providers as a key aspect of providing a quality service and building long-term relationships.
This extends to supporting SMEs as they explore new routes to growth in international markets.
A recent example of this was the support Lloyds TSB Commercial Finance provided to Fuller Fillies, the UK’s only equestrian clothing company specialising in plus sizes.
The family-run business was looking to tap into the growing and lucrative US market and in order to do so had negotiated an exclusive supply agreement with Smartpak, one of the country’s largest mail order retail companies.
To meet the up front costs of the agreement, Lloyds TSB Commercial Finance provided a £100,000 factoring facility to Fuller Fillies, which released the value of the company’s ledger. This enabled the firm to bridge the gap between the goods being sold, shipped to the USA and payment being received.
Our facilities allowed the business to make the most of this opportunity and the territory now accounts for 60 per cent of the company’s sales with over 33,000 garments a year exported to the US.
When we spoke to Suzanne Wild, co-founder of Fuller Fillies, she said: “Our bank at the time was unwilling to fund the Smartpak agreement, so we spoke to Lloyds TSB Commercial Finance which provided us with a factoring facility to closely match our needs. This strengthened our cash flow and allowed us to capitalise on the contract, as well as maintain sufficient stock in our offices and warehouse.”
The demand for Fuller Fillies’ products continues to grow month-on-month and the business is now looking to employ two more people to manage the expansion alongside the firm’s five existing staff.
Making the decision to trade overseas can be a challenging step for a business, which means it is vital to secure a funding partner which is committed to first-rate service. The best invoice finance companies are those which take the time to understand a firm’s international strategy and are able to provide currency lines and expertise to mitigate concerns.
Lloyds TSB Commercial Finance, for example, has grown its international capabilities in order to support cross-border funding.
A key tool for turnarounds
Service excellence is a feature that comes into even sharper focus when a business is facing significant challenges. In these situations, companies will look to funding partners that have a reputation for going above and beyond the call of duty and providing additional consultancy and support.
In a climate in which corporate restructuring or turnaround situations have become more common, obtaining the right advice and funding can mean the difference between business success and failure.
Invoice finance is a crucial form of financing for turnarounds, as it can quickly release the value of a firm’s assets to provide a vital cash flow boost.
This helps companies to put themselves on an even keel or to release valuable capital when other routes to funding have been closed off.
Recently, a branded corporate gift supplier which was badly affected by the downturn was able to return to profit and is now set to double turnover over the next eight months, after securing a factoring facility from Lloyds TSB Commercial Finance.
Plymouth-based Redrok supplies a wide range of promotional merchandise, including branded pens, bags, t-shirts, calendars and business cards to a variety of clients including Holiday Inn, the NHS, Pioneer and the England Athletics team.
The economic downturn began affecting the business in March 2009. When we spoke to managing director David Williams, he explained: “It was awful, the first thing to be chopped from budgets was corporate gifts and in a few weeks our turnover had fallen by 80 per cent”.
Lloyds TSB Commercial Finance provided a £60,000 factoring facility, which leverages the value of a firm’s sales ledger to free up cash flow. This is providing Redrok with the capital required to target new business opportunities and invest in new equipment.
Now the company, which currently employs eight people, is winning new contracts on a weekly basis and is on track to double turnover, taking it to seven figures by April 2011.
David said: “Our bank manager stayed close to us during the recession and provided additional guidance which allowed me to fully get to grips with our finances.
“The factoring facility was implemented immediately and meant we could fund the wholesale purchase of stock and expand the business in line with sales.
“Our recovery is largely down to this facility as it relieved cash flow problems and allowed us to focus on our growth strategy. As a result, we saw a 200 per cent increase in turnover last month and we are hoping to take on more members of staff.”
This case study demonstrates that with the right advice, support, funding and business strategy, management teams can not only mitigate challenging situations but can also capitalise on an improving economy and seize growth opportunities.
Going the extra mile to minimise risk
Providing superior service also requires a funder to understand what else they can offer their clients which would have a significant positive impact on their firm.
The best invoice finance lenders include the option to supplement their facilities with complementary products and additional services, such as those which offer value-added protection and assurance.
In a turbulent economic climate, credit insurance has proven increasingly popular with businesses, as it enables them to confidently move forward, safe in the knowledge that their sales ledger is protected.
This is largely a result of increasing concern about customer insolvency and the huge negative impact it can have on a company.
Credit insurance policies take the legwork out of spotting potential credit risk problems before they lead to a bad debt, which also frees up management time to focus on running their business.
Crucially, they 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.
A great example of the added value this brings is Lloyds TSB Commercial Finance’s relationship with a Dudley-based IT recruitment firm, where, through our debtor protection product, we were able to successfully safeguard the firm from the effects of a customer’s insolvency.
Concept Information Technology was established in 2000 and supplies trained engineers and IT staff to public sector and private sector firms on temporary and permanent contracts.
The company’s success was threatened when one of its customers became insolvent, leaving a significant outstanding debt. This would have considerably impacted the business’ cash flow had management not had the foresight to put in place a debtor protection policy with Lloyds TSB Commercial Finance in 2007.
The policy protects a company’s working capital by ensuring it receives payment of outstanding invoices should a customer become insolvent. Within just 30 days of its client filing for administration, the firm received payment from Lloyds TSB Commercial Finance.
Chris Short, managing director of Concept Information Technology, commented at the time: “Taking out a debtor protection policy has provided us with long-term peace of mind and has ensured that we’ve been safeguarded against bad debts.
“Knowing that our working capital is protected has enabled us to continue our growth strategy and expand our client base further without fear of future failures – something that has helped us to achieve record turnover despite the tough economic climate.”
Looking to the future
Service excellence is the difference between merely providing financing and being a trusted advisor to a business.
The most sophisticated funders take a case-by-case approach to lending and, by developing a deep understanding of a business and its strategy, can offer highly tailored support throughout the lifecycle.
As customers have become more knowledgeable about finance, those lenders which are dedicated to providing first-rate service generally report higher levels of customer satisfaction and service quality.
For example, almost 90 per cent of Lloyds TSB Commercial Finance’s clients over the past three years say they would recommend the funder to others. This is something we are hugely proud of and clearly demonstrates the positive impact our commitment to providing the highest levels of client service has on our relationships.
The invoice finance industry as a whole is continuing to develop a reputation for providing service excellence as standard, which is further cementing its place at the top table of business finance.
The product set is now ideally placed to help businesses confidently navigate the economic recovery and will play a key role in ensuring businesses capitalise on post-recession growth opportunities.
Source: Business Moneyfacts