Certainty of cash flow is vital for SMEs and with capital lending increasingly difficult and inaccessible, many SMEs are securing alternative forms of finance, away from the high street to fund business growth. Malcolm Piper, Director of Tandem Invoice Finance, explains more…

Indications are that the future of lending is set to be much more diverse. According to the Asset Based Finance Association (ABFA), the total number of businesses using asset-based finance in 2012 was approximately 43,000, and we believe this is set to dramatically increase through 2013 and beyond.

The vast majority of businesses claim a good understanding of business loans, but very little of asset-based lending. Although the high street is reported to be growing at a fraction of the rate of asset-based lending in the UK, it would appear that not just awareness but also a lack of understanding of alternative forms such as trade, stock, asset and invoice finance may be preventing a proportion of SMEs from taking advantage of them.

Brokers are therefore in a strong position to help educate their SME clients to the range of alternative finance options that are breaking through the market. For example, invoice finance has become a popular method of accessing working capital from what is often the businesses’ most valuable asset. This is particularly pertinent with some signs of recovery in the economy; it is often at this point, when reserves have been depleted, that working capital is short and the ability to deal directly with experienced professionals – not tick box credit calculators - becomes an attractive option for businesses. To add flexibility to the market, it is now possible to finance invoices individually - known as selective invoice financing.

Selective invoice finance offers higher levels of finance with lower risks. By choosing individual invoices, cash flow can be better managed and companies do not have to surrender their whole debtor book, removing the requirement to treat all clients, customers or debts in the same way allowing business owners to maintain a strong relationship with their clients.

As a result of these benefits, a number of SMEs feel that this approach provides an excellent springboard from which to access working capital. Ultimately, the solution is ideal for those companies who need to maintain overall control over cash flow.

There are many invoice finance providers in the market, from high street banks to specialist providers who target specific industries. The opportunity for introducers to promote the benefits of invoice finance as a pure cash product to their clients has never been greater. While more flexible forms of funding do not mean turning away from bank lending entirely, advisors need to be aware of how different types of funding can work together to support growth in a business.

It is important that intermediaries are able to offer advice on a range of unique offerings tailored to the client’s needs. Alternative finance products of this nature not only strengthen a broker’s product portfolio but equally the commission options offered (in addition to the competitive advantage gained) makes this range of finance an attractive offering. By offering a product such as selective invoice finance that does not require long-term commitment yet delivers prompt results, can ultimately help maintain stronger client relationships moving forward.