Example: An IT Recruitment and Payroll Service provider needs to expand their business but is waiting for payment from several higher volume customers. An Electrical Installation Services business needs to hire employees for a new sub-contracted construction project but doesn’t have a line of credit to pay them. Invoice Finance (the ability to borrow against existing outstanding invoices) could turn their invoices to credit-worthy buyers into assets for immediate access to capital.
‘Factoring’ has been around since the Roman Empire when it was the lifeblood of Rome’s trade routes, fraught with the uncertainties of global commerce. To this day, forms of factoring and invoice finance remain an important financing option, but mass adoption across the UK’s near 5.4 million Small & Medium Size Enterprises (SMEs) has yet to happen.
Example: A commercial farm enterprise is concerned about rising costs of energy, fertiliser and waste disposal, and is looking for ways to ‘finance in’ some productivity and ‘finance out’ some of it’s fixed costs. Project Finance such as the installation of a ‘Bio Gas’ plant will generate a significant second source of income as well as providing electricity, gas, heat and fertiliser enabling the business to become considerably more energy and waste self-sufficient.
The emergence of financial technology to accelerate lending holds promise and ‘big data’ is becoming increasingly widely available to support credit scoring. More importantly, levels of transparency and security are increasing. However, there is no substitute yet for the know-your-customer and risk management best practices of traditional financing.
