Business Factoring – Gearing Up For A New Era Of Growth
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UK GDP is predicted to grow faster than previously thought, thanks to a stronger-than-expected start to 2024 and a landslide election victory by a government committed to economic growth. The latest Deloitte CFO survey shows heightened optimism among UK finance leaders, with perceptions of economic uncertainty at an eight-year low and revenue growth expectations at a two-and-a-half-year high. Confidence has increased for the fourth consecutive quarter.
In this environment of increasing optimism, a growing number of business leaders are turning to the benefits of business factoring (also known as invoice financing) to maximize financial strength as they gear up for a new era of growth.
This article explores the barriers to growth today’s business leaders face and the benefits of business factoring to overcome financial hurdles. It includes a real-life case study to illustrate how eCapital, a leader in independent funding, helped an engineering company avert foreclosure, stabilize its financial structure, and gear up for a new era of growth.
A Growing Appetite for Investment
UK businesses have long struggled with chronic underinvestment compared to their European counterparts. Since the turn of the millennium, investment rates have declined in equipment and technology, and research and development have suffered from insufficient funding. Low productivity and a prevalent culture of late invoice payments add further complexities and remain among the most significant barriers to sustained growth.
However, as the economy shows early signs of stability and the start of long-term growth, there is a growing appetite for investment, especially among SMEs. According to a survey of 305 global CEOs, 71% of UK CEOs plan major investments in transformation initiatives. These results affirm the findings of a similar report, in which UK business leaders across all regions and sectors are planning to invest billions of pounds in growth in 2024:
- £35.1 billion in marketing
- £27.2 billion in staff training and development
- £24.7 billion in customer service
- £22.3 billion to improving facilities or tools
- £20.4 billion in recruitment
- £19.7 billion in digital technologies, including AI
The Road to Sustained Growth Remains Challenging
As the UK economy transitions from stagnation to stronger-than-expected GDP growth, businesses face significant challenges to sustained growth, including:
- Long-term Stability: Although economic optimism is rising among UK CEOs, external forces continue to threaten long-term stability. International conflicts, a potentially turbulent US election, and trade wars create an unpredictable business environment.
Business factoring supports operational agility by providing immediate cash flow to weather fluctuations and navigate a changeable landscape.
- Chronic Underinvestment: Historically low investment rates in equipment, technology, and research and development have hindered productivity and innovation.
Business factoring accelerates the cash conversion cycle, allowing businesses to reinvest working capital quickly.
- Late Invoice Payments: Despite the government’s attempts to abate the prevalence of late payments from customers, SMEs continue to suffer from long payment cycles that create financial strain and hampers the ability to invest in growth opportunities.
Business factoring immediately converts invoice receivables into cash in hand.
- Low Productivity: Persistently low productivity levels impact overall business performance and growth potential.
Business factoring creates access to the capital needed to invest in new technologies and workforce development to improve productivity.
- Access to Finance: As traditional lenders and investors continue to withdraw from middle-market lending, undercapitalized SMEs face challenges securing long-term financing.
Independent funders provide easy access to credit by bypassing traditional banking constraints. Business factoring offers a flexible and tailored financing solution that aligns with businesses’ ability to pay.
Business factoring (also known by various names) enhances operational agility by providing immediate cash flow, accelerates reinvestment by converting accounts receivables into cash quickly, and addresses challenges like late payments and low productivity by offering flexible, accessible credit solutions. It helps SMEs navigate economic uncertainties and funding gaps, supporting growth and stability.
How Does Business Factoring Work?
Business factoring accelerates the speed of funding without creating debt. A company sells its accounts receivable (invoices) to a factoring company at a discount in exchange for immediate cash, while the factoring company assumes the responsibility of collecting payments from customers. Business factoring is a non-dilutive form of financing that preserves equity and improves the company’s debt-to-equity ratio.
Straightforward Qualification: The approval process for business factoring is fast and simple. Rather than based on the business’s credit score and performance history, qualification is determined by the creditworthiness of the company’s customer base and the health of its sales ledger. Financing approval is typically decided within days.
The Funding Process: Business factoring is a simple and easy-to-manage financing arrangement:
Step 1: Invoice the customer and upload the invoice online.
Step 2: The factoring company will process the invoice and provide up to 90% of the invoice value within 24 hours.
Step 3: An experienced AR management team works with your customers to collect payment professionally and courteously to protect customer relations.
Step 4: When the invoice is paid, the factoring company deducts its fee and transfers the remaining funds to the business.
Business factoring supports growth by providing immediate cash flow, enabling businesses to invest in expansion, cover operational costs, and seize new opportunities without waiting for customer payments. However, the best business factoring companies offer more. With vast experience in dealing with the issues that growing businesses face across various industry sectors, leading business factoring companies offer extensive industry expertise to help manage growth.
Industry Expertise
The best business factoring companies are independent funders experienced in a range of industries. Extensive industry experience and expertise allows them to offer tailored financing solutions, valuable insights, and financial guidance to overcome financial hurdles and maximize results.
Let’s look at a real-life case study to illustrate how eCapital, a leader in independent funding, lifted a company from insolvency, resolved its overexposure to debt, and maximized access to capital.
Case Example: From Threatening Foreclosure to Stability
eCapital’s ability to tailor a fully workable invoice finance (business factoring) solution to meet the needs and capabilities of a struggling engineering company was critical in preserving this established business and safeguarding jobs.
When its previous lender was threatening to foreclose on the business as a result of the knock-on effect of a key customer loss, together with a non-secured CBILS exposure, eCapital’s senior management team collaborated closely with advisors and the business to put together a replacement facility.
The new £600k aggregated solution encompassing two trading entities has generated more available cash whilst successfully repaying the outgoing lender’s IF and CBILS liability. With its balance sheet restored to health and secured funding in place, this engineering firm is solvent and positioned for growth.
Conclusion
Despite growing optimism, ongoing economic challenges persist. Effective financial management remains crucial for businesses to operate efficiently. For SMEs and independent companies, business factoring can enhance cash flow efficiencies, support investment in growth opportunities, and facilitate operational expansion.
Contact us today to request a free financing consultation and see what eCapital can do for your business.
Key Takeaways
- Optimism and confidence among UK finance leaders have increased for the fourth consecutive quarter.
- As the UK economy transitions from stagnation to stronger-than-expected GDP growth, businesses face significant challenges to sustained growth.
- A growing number of business leaders are turning to the benefits of business factoring to maximize financial strength as they gear up for a new era of growth.
- Extensive industry experience and expertise allow leading independent funders to offer tailored financing solutions to enhance cash flow efficiencies, support investment in growth opportunities, and facilitate operational expansion.
eCapital UK
eCapital Commercial Finance (eCapital) is a leading invoice financier providing funding facilities up to £4m to support the growth of SMEs through the provision of flexible working capital facilities. With five fully functional UK regional offices, its local teams are uniquely placed to respond promptly and purposefully to the cashflow needs of its clients. The business has grown significantly since its launch in 2001, providing over £12 billion of funding to businesses. It is majority owned by eCapital, a US based financial services business with interests in the USA and Canada.
