It was philosopher Herbert Spencer who coined the phrase ‘survival of the fittest’ more than 140 years ago after reading Darwin’s book on natural selection, a mantra which has proven very popular with Business Gurus advising the UK’s hard-working enterprises during the current economic climate. The clever companies will have already improved their fitness levels by trimming costs to the bone, cutting their workforce to skeletal levels and reviewing every aspect of the business model in search of further ways to cut costs. But the issue now for UK businesses is now trying to stand out from the crowd in a benign market, where being lean and mean just isn’t enough differentiation anymore. It’s not necessarily survival of the fittest anymore... but survival of the most able to adapt! The economy and corporate environment have changed and those who do not adapt will be left behind. This is especially true when seeking out external finance to help increase your business cashflow levels. Take the following example.
Overdraft renewal problems
The days of renewing the overdraft over a leisurely lunch with the bank manager are a thing of the past. Indeed, there is no longer the guarantee that it’s merely a formality to renew the same facilities, let alone get new or increased funding lines agreed. The recent changes in legislation, which has eroded the security value of the traditional mortgage debenture, has led to a marked change in the stance of banks and their lending criteria. This means the banks are increasingly looking for higher levels of personal security to support facilities. The granting of an overdraft is also dictated by the historic financial performance of the client and, with the current economic crisis showing no real signs of improving, most businesses have seen some trading losses and a weakening of their balance sheet. This ultimately makes it even more difficult for the bank to be able to agree a facility! Add to this the Banks’ own issues, where they are looking to protect and strengthen their own balance sheets, and unfortunately only a lucky few will be granted overdrafts. This has created a vacuum in the market which many businesses are struggling to fill.
Where to look for funding?
One way to adapt to this problem is to look for alternative sources of finance. Invoice discounting is a dynamic funding tool which allows immediate access to cash secured against the company’s debtor book. Rather than wait 30, 60 or even 90 days for the customers to pay, the client can draw down up to 90% of the outstanding balance immediately, which can greatly increase cashflow.
Why choose Invoice Finance over a Bank Overdraft?
- It generates more cash than an overdraft – usually twice as much
- Less personal security is required for invoice finance so there’s no need to give a charge over the family home!
- It is based on the sales you create, therefore grows with the business, meaning you don’t have to keep going back to the bank with cap in hand
- You can have access to capital almost instantly using invoice finance
- It is not granted on historic balance sheet performance and is therefore suitable for new start businesses and businesses in turnaround or highly geared
As an owner-managed business, if you want to survive in today’s chaotic environment, you may have to adapt to survive and consider a different route to funding business. If you’re struggling to find an appropriate external finance solution for your business, why not browse our website for more information on how invoice finance solutions such as invoice factoring or invoice discounting works, or give our team of experts a call on 0845 602 9354 for a friendly chat and a no-obligation quote.