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.