Overdraft Funding Levels versus Invoice Finance, Invoice Discounting & Factoring

  • Anil Kanda
  • 28 Oct, 2010

There has been much talk in the press recently about the need to increase lending to UK businesses, a small survey was recently undertaken to determine what was happening to overdraft lending to a random sample of 100 SMEs (Small and Medium Sized Enterprises).

It was found that 88% of respondents actually had an overdraft facility. Clearly the use of overdraft is far more prevalent than the use of invoice finance because the products are not well known to businesses.

SMEs were asked to quantify the percentage of their sales ledger that their overdraft represented and the average percentage stated was just 2.6% of their debtor outstandings.

Invoice finance could potentially unlock significantly higher levels of funding for some of these customers, with the ABFA figures to June 2010 showing pure invoice finance advances against debt to represent an average of over 42% of clients’ debtor outstandings.

SMEs were asked if they had seen their overdraft increase, decrease or remain the same over the last year. The result was startling, none of the respondents reported an increase in their overdraft, 39% reported a decrease and 11% said that their overdraft had now been completely taken away.

The opportunity to further support UK SMEs through invoice finance remains significant and still largely untapped.

Glenn Blackman MBA MCIM undertook this research regarding invoice finance.

Invoice Finance is growing rapidly in popularity allowing businesses to speed up cash flow by releasing up to 90% of invoice value immediately removing the need for bank loans and overdrafts to meet bills and wages. Start an application now