By Daniel Hunter
UK businesses are increasingly turning to invoice financing to fund their exports, says leading commercial law firm EMW.
Figures show that export invoice financing rose 12% in 2011 (year end Dec 31) compared with the same period in 2010. Between 2009 and 2011 it rose 45%, from £10.6 billion to £15.4 billion — significantly faster than the market as whole, and more than double the rise in domestic invoice financing.
Invoice financing, otherwise known as factoring or invoice discounting, allows businesses to borrow against unpaid invoices and is a useful short term solution to cash-flow issues.
The service allows businesses to recoup the value of invoices much faster, often within 24 hours of delivery of goods as opposed to the 30 — 90 day periods stipulated on invoices.
According to some commentators, Small and Medium Enterprises (SMEs), in particular, are increasingly using invoice financing to fund their businesses because of the lack of traditional lending from banks to small businesses.
The continuing Eurozone crisis may also be a significant factor behind the rise, as exporters often have to wait even longer for payments from struggling European customers.
“Invoice financing can create some headroom for exporters, particularly in the event orders fall or the importer does not pay on time. If you have a customer based in Portugal, Italy, Greece or Spain then you might well be worried about them delaying payment of your invoices,” EMW Principal, Jodi Tierney, said.
“Recovering money from debtors abroad can be very difficult, particularly for SMEs. If a customer sits on invoices, there is often very little a business can do short of taking legal action. If your invoices are funded you will also have the assistance of an experienced invoice financier behind you to help with the collection process.”
The European Late Payment Directive, published in February 2011, suggests that invoices should be paid within 30 days, although there will be an option to increase this to a maximum 60 day period. However, the directive is not expected to be implemented until March 2013.
“Late payment has become a serious threat to businesses in both the UK and abroad, meaning many businesses are using invoice financing just to keep afloat,” Jodi Tierney adds.
“This, coupled with a shortage of traditional lending and a rumbling crisis in the Eurozone is putting increasing pressure on exporters, meaning the interest in invoice financing should grow.”
Tierney says that export invoice financing is a good way of allowing smaller UK businesses to take advantage of the pound’s competitiveness to boost exports and expand their businesses.
The 31% rise in exports since 2009, from £228 billion to £299 billion in 2011 (Q1 — Q4), would support the idea that a weaker sterling may be helping to boost exports.
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