In 2017, almost half of all small to medium UK enterprises turned down a contract or order because they couldn’t deliver the work due to a lack of available finance, a trend that is expected to continue in 2018.
According to funding line data from Hitachi Capital Invoice Finance, the demand for invoice finance is expected to grow by 21% this year in comparison to 2017. (The total credit leant to businesses by the company in 2017 was £893,000,000, contrasting a predicted £1,080,530,000 in 2018.)
SMEs are most likely to seek invoice finance between May and August with overall enquiries for cashflow finance increasing significantly in June, suggesting seasonal demand. Staff holidays and overall reduced business hours have a consequential impact on the demand for such funding.
Another key financial takeaway from 2017 is how in November, the official bank rate increased for the first time since July 2007 from 0.25% to 0.5%, which may leave business owners asking if this could negatively impact their finance rates when using a third party lender.
Andy Dodd, managing director at Hitachi Capital Invoice Finance, said: “Whilst the Bank of England base rate has risen, it’s still historically very low and not anticipated to rise substantially in the short or medium term. A sound business will match its method of borrowing to the asset being financed and on which the debt is secured. This means cashflow finance represents some of the lowest interest rates and most flexible methods of finance which rises and falls with fluctuations in turnover. Therefore, if the business has sound profit margins, the cost of interest will behave like a variable cost moving in line with turnover. Crucially, a good cashflow finance provider will ensure that the collection of debtor invoices is efficiently and professionally carried out to minimise the amount that needs to be borrowed, mitigating future interest rate rises.”
A previous study* by Hitachi Capital also revealed how 50% of SMEs lost out on up to £10,000 in 12 months due to rejecting contracts, meaning it is crucial that business owners plan ahead to help manage resource.
The ‘2018 Cashflow Calendar’ identifies key dates and financial events throughout the year that could influence a business’s cashflow and guide business owners to help better manage available funds.
A couple of examples from the calendar include how the EU summer break should be considered when meeting client demand, Brexit negotiations and top trade shows that could help secure new business.
*Study conducted by Hitachi Capital Invoice Finance in July 2017