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John Layzell Senior Manager Business Development

By John Layzell, senior manager, business management at Lloyds Bank Commercial Finance

All nine UK regions made a positive start to 2014 with Wales maintaining robust levels of output growth and the South West outperforming the rest of the UK, according to the latest Lloyds Bank England and Wales regional PMI report.

John Layzell Senior Manager Business Development

John Layzell Senior Manager Business Development

The latest Lloyds Bank Business in Britain (BIB) report also found that business confidence has reached a 20-year high and more than a quarter of businesses expect to increase their capital expenditure over the next six months.

After years of subdued economic forecasts, this looks set to be the year that SMEs in the UK can put their growth ambitions back on track by launching new products and entering new markets.

To do this, firms must take a long-term view of their financial planning to fulfil their growth plans.

One thing that can often prevent this long-term planning, especially for SMEs, is cashflow, particularly the short term pressure caused by late payments. The most recent BIB report found that 19 per cent of 1500 UK firms now face difficulties with cashflow.

Of those who were experiencing cashflow problems, 59 per cent blame late payments. Businesses can wait up to 90 days for payment from clients yet often need to pay staff and suppliers weekly.

To take advantage of new opportunities for growth, funding options such as invoice discounting may hold the key. This type of funding can often be used to improve a company’s working capital and cashflow. It allows a business to draw money against its sales invoices before a client has actually paid.

The latest Asset Based Finance Association (ABFA) statistics confirm that there are 18,931 firms using domestic invoice discounting in the UK, a rise of three per cent since this time last year, with the manufacturing sector using asset based lending more than any other industry.

Many smaller firms can benefit from an invoice factoring service, which releases up to 90 per cent of the value of issued invoices. Similar to invoice discounting, factoring can enable firms to free up cash from unpaid invoices but with this option, the factor will also take responsibility for a business’ ledger.

Similarly, hire purchase facilities can offer companies access to new machinery to provide the capacity to deal with an increase in orders by enabling a firm to purchase new machinery or goods through an instalment plan.

Further research from ABFA shows that the total funding provided by the industry, through leasing and hire purchase deals of up to £20 million, increased by four per cent compared with the same quarter in 2012 to just over £5.3 billion.

Part of the increase in popularity that asset based finance has experienced could be attributed to the fact that the industry has not tried to pretend to be an alternative to more traditional forms of lending. Instead, it is emerging to sit alongside senior debt to fund private equity-backed deals, for example.

It can and should be considered as one potential facet in financing the buyouts and working capital requirements of companies.

Meanwhile, both SMEs and larger organisations should consider signing up to the Prompt Payment Code, which was established in 2008 to help suppliers recover money in a timelier manner.

The Prompt Payment Code encourages good practice for paying suppliers and is driving a change in the payment culture that has previously existed.

Backed by Government, the scheme aims to encourage big businesses to pay their suppliers faster, and abide by the terms set out in their contract. Suppliers are also guaranteed the right to complain if they are unhappy.

Another Government scheme which we support is the Regional Growth Fund (RGF). This can help companies that can demonstrate job creation in the UK to fund projects and programmes that are using private sector investment, to create economic growth and sustainable employment.

To help SME customers, we champion the Funding for Lending Scheme (FLS), offering discounts of one per cent to all of our Lloyds Bank Commercial Banking SMEs for the life of their business loan. Since September 2012, we have committed £6.3 billion to our small and medium-sized customers through FLS.

By using the recent successes of asset based finance as a platform, funders can bring this method of lending to more businesses and give companies a further boost.

With growth gathering momentum and the UK making a positive recovery, planning ahead and leaving ample headroom to account for any challenges that may occur during 2014 can help UK businesses to look forward and plan for a brighter future.

Global Banking & Finance Review


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