As the SME sector continues to struggle to secure financing from traditional lending institutions, a significant number are turning to debtor financing provided by non-bank lenders.
Bibby Financial Services, a global specialist provider of debtor finance, has seen its books grow by 40 per cent over the last 12 months as a result of tougher lending conditions over the last year. Bibby reported rising number of new clients and enquiries over the last 12 months who are using debtor financing for the first time.
Greg Charlwood, Managing Director of Bibby Financial Services said, “We are seeing considerable resilience among clients who have used debtor financing over the last 12 - 18 months and who are enjoying improved debt-turn and reliable access to working capital. We believe these SMEs are generally coping better than those businesses still holding out for bank funding or just hanging on.”
“We are also experiencing an increase number of larger businesses using our debtor finance facility than previously, which appears to be due to traditional funding sources re-setting their cut-off point for the size of companies they prefer to deal with,” Mr Charlwood said.
Debtor financing is designed to improve cash flow and increase the working capital available to a business. It typically converts up to 80 per cent of the value of each sales invoice into immediate cash. Once payment has been received from the debtor, the remaining 20 per cent, less a service fee is returned to the client.
Economic outlook
According to NAB’s June 2010 Quarterly Business Survey, business confidence declined heavily in the June quarter for the first time since the recovery from the GFC. Conditions fell in retail, wholesale, transport and recreation but improved in the construction and manufacturing sectors.
Conditions weakened in NSW, Queensland and South Australia over the June quarter but improved in Western Australia. The strongest of the major states are now WA and Victoria.
Australian GDP forecasts are now softer in response to the easing in conditions and disturbances during the June quarter - NAB forecasts growth of 2.75% in 2010 and 3.5% in 2011, expecting unemployment to fall to around 4.75% by end of 2010.
Short-term and long-term expectations for business conditions and forward orders remain positive but at the lower end of the range of pre-GFC levels, according to the June 2010 report.
“Despite some positive signs emerging from the economy, there are still many hidden credit risks for businesses including defaults, insolvencies, reduced support from the Government’s economic stimulus and rising interest rates,” Mr Charlwood said.
“We expect the debtor finance industry to grow by 20% over the next 12 months and we intend to stand by our clients in these tough times, thanks to the flexibility of this unique product. After all, SME’s in Australia are the largest employers and largest contributors to GDP – an important sector to support,” Mr Charlwood said.
Posted on 19 August 2010