British SMEs own £770 billion in assets – equivalent to 48 per cent of the UK’s GDP – and are owed £291 billion in outstanding invoices that they could use to fund future growth, according to new research published by Lloyds Bank Commercial Banking.
Although businesses are becoming more confident about investing in future growth, and although many are aware of invoice financing as a possible form of lending, very few businesses have used it to drive growth in the past 12 months.
Invoice finance can help businesses release cash quickly, giving them access to up to 90 per cent of the value of their issued invoices, often within 24 hours.
“Our research found that more than half (57 per cent) of SMEs in Yorkshire and the Humber are more confident about investing in growth this year than they were 12 months ago.
“Despite this, SMEs are missing out on the opportunity to recruit new staff, break into new markets or develop new products because they are not harnessing the full range of funding options available that could unlock the value in their assets or invoices to help them grow.
“As a result, businesses are turning down contracts that they think they cannot afford to fund and are holding back their own growth potential.”
While almost half (49 per cent) of SMEs nationwide are aware of invoice financing, and around a third (36 per cent) are aware of asset-based lending, only one in 11 businesses (nine per cent) has used invoice financing in the past 12 months, and even fewer (five per cent) have used asset based lending.
In contrast, far more businesses have used an overdraft in the past year (24 per cent), while almost one in three (32 per cent) have used a loan.
According to Clare Boswell, the gap between awareness and use suggested that too many businesses still didn’t understand the full range of finance products available to them, how they worked and how they could simply and quickly give them the funds they needed to invest in growth.
“If they had access to the funds, more than a third of businesses (38 per cent) want to take on new staff, almost as many (31 per cent) to break into new markets, while more than a quarter (27 per cent) would look to develop new products.
“This is positive news and suggests that businesses recognise the opportunities that are out there for them in the recovery.
“But despite the fact that even the average SME in Yorkshire and the Humber is owed almost £75,000 in unpaid invoices – and that for one in nine (11 per cent) nationally, those outstanding bills are worth more than £200,000 – even those businesses who are aware of different finance options appear not to understand them enough to take advantage of them.
“Unless businesses start looking at potential solutions like these more seriously, both they and the UK’s recovery overall are likely to be held back.”
By taking the uncertainty out of payment times, invoice finance also gives businesses firm control over the working capital they have access to.
Because it can grow with businesses’ turnover, it can also give firms greater flexibility by increasing the amount of cash available to them as their order books increase in size.
Asset based lending enables businesses to unlock the value tied up in stock, plant, machinery or property to give them access to working capital that can help them expand, acquire new equipment, or even fund a management buy out or acquisition.
Designed for businesses with a turnover of more than £1 million, it works alongside invoice financing to provide a cost-effective, scalable and flexible way of increasing their working capital without slowing growth.