I am a believer in invoice discounting – but only as a form of funding in the right situation.There seems to be a slight shift back to it being the ‘funding of last resort’ as banks will often prefer their overdraft users to switch to ID. It’s a good form of finance for a growing business with terms of trade that mean that it needs to pull forward its cash flow, but combined with the fact that it can use that money productively for its next trade. Bookkeeping . For a flat or declining business it is used for survival – but with the end result that it just depresses their margins further. I was alarmed therefore at a press release from Hilton-Baird that stated that 50% of users of ID had seen an increase in their turnover – as if that was good. Their genuine message was that users of ID had grown more than non-users (43% turnover growth) but that should naturally be the case anyway, surely?
I have had three cases in the last month where banks have encouraged a client to switch to ID and in only one case was it the right form of finance for them. In one case a creative approach to asset finance was better, in the second we found them a new banker – in the third we did a proper search of the market to find them the best package that will work well for them.
The message is that this form of funding can be ideal – but check that first and also ensure you conduct a very thorough search of the numerous providers around to ensure you are getting into a relationship with the right funding partner.