Banks are not the only option when it comes to lending

Figures recently released by the Bank of England show that lending to businesses fell for the fifth successive month to July 2010, with a staggering £2.5billion less being lent to businesses compared to the month before.

It would appear that whilst credit conditions are easing for larger companies, they remain tight for smaller SME's, with businesses apparently concentrating on paying off existing debts, rather than taking on new ones. Another side to the argument, of course, is that the SME market is HAVING to pay off debts, because they are unable to obtain further finance due to the lack of lending available. This is in conjunction with a drop in the cost of borrowing, with interest rates at their lowest since August 2007, suggesting that funds quite simply are not being made available.

A major concern is that if this restriction in lending continues, then SME's will not be able to create jobs and contribute to the economic recovery. Fears of a return to recession will always remain whilst borrowing remains tight.

Talking to people in the finance industry, it would appear that on anecdotal level at least, this lack of funding is being seen more frequently, making people look to less traditional sources of funding. Independent factors and invoice discounters are all reporting a rise in enquiries as they become more recognised as prominent, competitive sources of funds for the SME market, and an alternative to the banks.

A way of increasing the likelyhood of obtaining funding is to provide the market with up to date management figures. This enables a lender to make an informed decision on whether to lend funds, and increases the possibility of a deal being available. This is something which is also echoed in the Credit Insurance market, where we are seeing underwriters request management information in order to allow them to offer higher levels of credit to customers who wish to insure their suppliers. Most major credit insurance companies now have lines of communication dedicated to this. If up to date figures are showing an improvement compared to the recession hit accounts filed at Companies House, it is certainly within every ones interest to share this information and try and open the credit circle further to aid cash flow and growth.

With access to additional funding remaining so tight, it is imperative that companies protect and improve what cash flow they have. Whilst it seems companies were willing to ease their credit control procedures to help customers trade through the recession, they now appear to be tightening their belts again and reigning in late payers. LBA's (Letter Before Action) are being followed up more quickly as companies realise the effects late payments can have on their cash flow. It is important to remember that tight control must be kept on this area of the business, and that a customer who does not pay is not a valued customer, but a bad debt waiting to happen.

Whilst it is vital to maintain good internal credit control proceedures, it is worth remembering that options are available when it comes to improving cash flow. The key is to look at all the options available, and seek the best advice.

For further information on Credit Insurance and Factoring, please contact me on samf@exchangeis.net, or visit our company website www.exchangeis.net for further information.

Remember Circumstances Change

When I was working for my last employer, I chased after an account for three years at policy renewal, always putting my best quote forward, and always losing out to competition. To get to the point, when I called the FD this year, it turns out they had stopped insuring last year due to not getting much use from the policy, but were now very interested in seeing me again and reviewing.

In short, their circumstances had changed in the last 8 months, and the list of reasons for them to credit insure had grown far beyond the number of reasons they had to insure when they had a policy in place. From simply wanting to protect themselves after suffering a bad debt the year before, they now wanted to improve the levels of information their sales team and credit control team have access to (and hopefully build a bridge between business prevention and business development). The FD wanted to see the underlying re-assurance of having processes in place that would be kept to now she is out of the office more often, as well as the ability to effectively chase overdue debts around the world. Protecting the company against bad debts had become nothing more than a side issue which their policy happens to cover them against.

Essentially, the point I am making is that just because credit insurance wasn't the right product for you last time you looked at it, or even last time you had a policy in place, that does not mean it will continue to be the wrong product. As a company's circumstances change, the need for different products and services change, and maybe credit insurance will be correct product for you or your client this time round.

For a free, no obligation review of your circumstances, please contact me at samf@exchangeis.net, giving your name, company name and phone number, and I will call you to arrange a consultation.

Remember, what was wrong in past, may be the perfect solution for you or your client now.

Is Asset Financing The Way Forward?

Over recent months, I seem to be talking to more and more companies who have lost faith in their banks, and have all but given up on approaching their banks when it comes to seeking finance for their business. With the main high street banks seemingly asking people to be the perfect client before agreeing to lend (and begging the question why would you need to borrow money if you already have it?), it seems as if people are running out of options.

This is where there seems to be a great opportunity for the invoice finance/asset based finance market to step up and really play a part in re-building the economy. It would appear more companies are turning to invoice finance as a means to grow their business, as more people lose faith in the traditional sources of funding. according to a recent survey, 80% of the 250 accountancy firms interviewed, agreed with this, with 53% growing as far as to say asset based lending was the most effective for business growth.

It would appear as well that factoring is finally managing off the shake off the shackles of being associated with poor companies with no money. For a time it appeared that endless bank borrowing and loans was fine, but asset finance was frowned upon, and seen to be the last resolve of a company nobody else wanted to touch. It's time for this to change once and for all, and the business world to recognise a valuable source of funding which will surely play an integral part as we strive to trade our way out of recession, and avoid the dreaded double dip.

As always, credit insurance has its part to play as well. Aligning a credit insurance alongside your finance facility can maximise the effectiveness of your facility. Often allowing for higher levels of funding, more favourable lending rates, and most importantly more security for you and your funder, the two products can play an integral part in helping your business to grow safely and securely.

For more information about credit insurance, factoring and invoice discounting, please contact me via twitter, LinkedIn, and through www.exchangeis.net.

As always, your comments and feedback would be greatly appreciated.

Seven Reasons To Credit Insure

Nice and simple this week - its seven reasons why companies choose to credit insure.

1) Peace of Mind - Being safe in the knowledge that you will get paid even if your customer has gone bust, or simply doesn't have the means to pay you right now. For many companies, their largest asset is their sales ledger - why don't they protect it the way the protect everything else?

2) Improved Cash Flow - Credit insured suppliers are paid faster than non credit insured suppliers. According to a study, it is actually 10-15 days quicker than a non insured supplier. Such a simple thing can make a huge difference to companies.

3) Secure Business Growth - By using the information credit insurance companies can provide, you can target the right business at the right time, allowing secure growth. By identifying weaker companies, you can avoid the risk and expand with confidence. Turn over is vanity, so seeking profitbale business is the key.

4) Risk Avoidance and Reduction of Bad debt – Detailed knowledge of trade sectors and industries, combined with high levels of information on companies enables the correct credit limits to be set on customers. Monitoring these limits enables the risk to be reduced, and dangerous exposures to be monitored and reduced.

5) Tighter Credit Management - Credit insurance encourages tighter credit management, improved cash flow, and more discipline. An invoice is a potential bad debt until it has been paid, so get it paid more quickly.

6) Improved Access To Trade Finance - Many banks and lenders are often more able to offer improved terms and rates when they know their client has taken prudent steps to cover their risks. Many insist on this at the moment.

7) Improved Trading Terms with Suppliers - just as banks like to deal with prudent companies, so do suppliers. Would you prefer to deal with a prudent company? Chances are, so would they!

So there you have it. In short, credit insurance is all about being better informed, being paid more quickly and protecting against bad debt.

As always, please feel free to contact me via twitter, LinkedIn, or through the Exchange Insurance Services web site for more information, and to arrange a consultation.

Stuck Between a Rok and a Hard Place

Over the last 2 years, credit insurance, and the insurers, have a pretty hard time defending themselves against attacks from the press, the public, and their own customers. Many people have placed a lot of blame for the impact of the recession in the hands of the credit insurance industry, I think with varying degrees of credibility, and it would appear that we could find ourselves in a similar situation if we are not careful.

Back in 2008, many companies warned of the negative impact credit insurance was having on the construction industry, with a massive reduction in available credit limits, coupled with an increase in insolvencies and claims placing major strain on supplier lines, and supplier confidence. However, with claims ratio's running at circa 130% at times in the last couple of years, it is hardly surprising that insurers where taking steps to protect themselves. It must be remembered that a credit insurer has a duty of care to their customers, their shareholders, and their staff. Unfortunately, this duty of care will inevitably lead to conflicts of interest, and certainly conflict of opinion.

The approach taken by most insurers to solve this problem was to encourage more active communication between insurers, their customers, and suppliers to try and keep credit lines open, and make the flow of information as free as possible. The major credit insurance companies have openly encouraged companies to supply management figures to them, with most setting up dedicated teams and email services to ease the flow of information. According to a recent Atradius publication, they have reinstated cover on over 100,000 buyers so far this year, and the process is continuing. Atradius reinforced this position further by stating they have "just opened up cover on 44,000 additional UK risks...... an estimated increase of £2bn potential cover".

Doubts still remain over what the future holds for the credit insurance industry though. With fears of a double dip recession becoming increasingly visible, and with pressure building on the order books of the construction industry, questions will be asked about how credit insurers will react this time round. Insolvencies in the industry fell to 271 fatalities in July 2010, compared to 382 in July 09 and administrations in the sector have also fallen for 5 consecutive quarters up to Q2 2010.

Here is the difficult part. It is widely believed that public sector cuts will see a reverse to this trend, with a difficult autumn and winter set to bring further damages to the industry. In Q2 2010, the construction industry was still one of the highest offenders in issuing profit warnings (behind Travel and Leisure, and Support Services), and if the cuts run as deep as people suspect they will, then surely the risk of this increasing is on the cards? With Rok, one of the largest and well known construction companies in the country recently suspending their Chief Finance Officer due to "serious failings" in financial and operational controls, this will surely have construction underwriters squirming and looking closely at their sector. Recent figures have shown Rok making a pre-tax loss of £3.8M, with a drop in revenue to £308.1M, down from £364.8M the year before.

The question to be asked is have credit insurance companies, brokers and advisers spread the message of sharing information enough to ensure that they now have the information to maintain cover in this sector, and to positively underwrite and support a major factor in this countries recovery in what will probably be difficult times to come. Patience also has to be shown by customers as well, who must understand that credit insurance is there to support good risks, whilst identifying the poor risks, and moving their customers away from this. If an insurance company refuses cover, rather than lambasting them, ask yourself why they have done this, and take prudent steps to ensure trade is as secure as possible, and communication is open and honest between all parties. Now is not a time to play the blame game, but to work to get the best results for all parties.

Recovery or Return to Recession?

In the second quarter of 2010, Britain's economy grew by a whopping 1.1% - the highest growth rate in four years, and almost double the expected growth rate for Q2. With the construction industry growing by a reported 6.6% (slightly inflated by a delay in Q1 projects affected by the weather), and with business services and finance growing by 0.9%, the signs are that we appear to be moving in the right directions.

However, with continued cut backs and contraction in the public sector, there is certainly pressure building up on the private sector to maintain it's current growth momentum, and essentially haul the rest of the country through these difficult time. The question is though, can they do it?

The positive growth rate which we have seen in the first half of the year, does not appear to be having a positive influence on consumer confidence, or indeed on SME's. With the dreaded double-dip recession still very much in peoples minds, it would appear that confidence is actually down, and is in stark contrast to what some of the figures would have us believe. The July Consumer Confidence Index is down for a fifth month to -22, the lowest this has been since August 2009 when the economy was still contracting. With many people considering the Consumer Confidence Index to be a strong indicator of what the economy itself will do in the future, then the continual slide certainly makes the idea of a double-dip recession all the more real.

This pessimistic mood would also appear to be reflected in the mood of British SME's, as well as on the high street. According to RSM Tenon's Business Barometer, 76% of entrepreneurs have still not seen business levels return to where they were in 2007, prior to the credit crunch. To compound this further, over 50% believe they will waiting another 2 or more years before things return to normal, or to the levels of trade seen before the crisis. It seems that a double-dip recession is certainly a real fear in the business world, and one which we should all be looking to protect ourselves against.

With RSM Tenon believing there are likely to be more than 20,000 business failures this year, we can expect to see figures which will rival the records seen in the last two years. It would appear from this that credit insurance, and credit insurance companies, will have a vital role to play protecting UK business from the potentially catastrophic effects of bad debts. Should these figures be correct, then it appears essential that we do not see a repeat of the wholesale reduction in cover we saw last year, but instead see steady, prudent underwriting, with support being given to companies at the time it will really be needed. It should also be remembered though that credit insurers are not here to support bad businesses, and that we should not be surprised to see cover being withdrawn from those who are failing.

Remember, credit insurance is here to aid companies in making prudent risk decisions, and not here to underwrite every piece of trade carried out. Communication will remain the key, and as long as your credit insurer is involved in this dialogue, then positive decisions will always be the aim. With most credit insurers eager to write new business, and most competing well on price and credit limits, the time seems right to start taking prudent steps, and insure what is possibly your companies largest asset - it's sales ledger.

For more information, please email me at samf@exchangeis.net, or contact me on twitter - Sam_exchangeis.

Cash Flow: Keeping Businesses in Business

A lot has been written recently about how the economy is effecting all business at the moment, from the largest multi nationals, to the one man bands who are setting up by themselves for the first time. One thing which does not seem to be getting the column inches it really needs though, is cash flow, and the importance of protecting what is essentially the life blood of a company. Without cash, a business cannot operate. It's as simple as that.

According to recent research carried by BACS, British SME's are having to wait an average of 41 days beyond terms to get paid, a situation which is clearly putting unnecessary strain on company cash flow. In fact, Lovettes have also recently said they seen a rise in late payment demands of around 24.5% recently, showing that companies are at least trying to address the situation and get their over due payments in. This can almost be a case of bolting the door when the horse is out of the stable though. The damage may well have already been done.

This strain on cash flow is clearly taking it's toll on British SME's, and as recently as a week ago, Forge Dam Ltd, a 2.2 million turn over company based in Leeds, cited "severe cash flow issues" as the principal reason for going into Administration.

Couple this constant late payment, with the fact that the availability of credit still appears to be an issue, and the future certainly looks difficult for companies. Currently more loans are being paid off than granted. Since 2008, lending figures have been positive in only 3 months, indicating that the money to lend either is not there, or isn't being released by the banks. This would certainly seem to be an issue the coalition government is taking note of also, with George Osbourn and Vince cable apparently set to spell out the dangers of a double dip recession if bank lending continues to dry up. With a significant number of loans set to mature in 2010, the banks certainly have a major part to play in the future of small businesses.

So surely, we need to be looking at solutions to this problem which companies can access easily, and will allow them to trade with confidence, and more importantly, get paid. Unfortunately, I don't have the power to solve the banking issues we have, or the money to issue the loans personally, so we have to be looking at solutions that are closer to home, and this is where the shameless plug come in!

Credit insurance is now sold as a package which is designed to address many of the issues that can affect a companies cash flow, and certainly help to ease the pressures that can be suffered. No longer is it a product which is solely used to claim against an insolvency (although this is still integral to the policy), but a product which should work alongside a credit control department.

Users are encouraged to credit check potential new customers, helping to identify those who are more likely to cause payment issues in the future, and all customers can be monitored to identify changes in payment patterns. The principal is to avoid the cash flow issues, by avoiding the companies who cause them. A customer is not a customer until they have paid. With many companies eager to take on new business, but worried about late payments, an aid to help ease the pressure is certainly out there.

Access to comprehensive legal and collections services also helps to strengthen the hand of the credit control department, with the threat of legal action carried out by an insurance company carrying a lot of weight. Especially when companies are monitored to see if they are slow payers, with cover potentially being withdrawn on the main offenders. By passing any severe issues to a credit insurer, it can free up more time to chase payments from others more quickly, and more effectively.

Finally, the policies still protect against the potentially catastrophic effects of a bad debt. A sudden large whole in cash flow can often cause a company fail themselves, the "domino effect" continuing until either a company is insured, or is simply big enough to take the hit. With cash seemingly at a premium though, it seems harder to find the companies who can soak up this debt, and harder to find those who are willing to take the risk and enter into large contracts that could leave them exposed to a catastrophic debt.

Credit insurance may not be able to solve all of a company's problems, but with the need to protect key assets becoming more an more important, surely it time for more attention to be paid to what for most companies is their largest, yet most vulnerable asset - their sales ledger.

For more information, please contact me at samf@exchangeis.net, or through twitter (sam_exchangeis) or find me on LinkedIn.