Businesses who stick their heads in the sand by opting for credit cards and overdrafts report slower rates of turnover, but the pressure of the double-dip keeps luring Britain's SMEs into the quick-fix trap.
A quick-fix in business finance means trouble. Under the weight of the double-dip recession, Britain's SMEs increasingly choose to secure short-term finance solutions, and are thus throwing themselves into a pool of problems for their future, according to the latest SME Trends Index research from Hilton-Baird Financial Solutions.
Figures suggest that businesses are opting for the easy way for their cash-flow problems. Out of 454 business owners and finance directors questioned in the research, over half rely on business credit cards, while only 18 per cent are utilising bespoke financing options.
Those who used bank overdrafts and other short-term solutions often face a fallback with lower turnover, sluggish productivity and restricted business growth.
Businesses who are more informed about their various finance options experienced a growth in turnover. Invoice finance users, for example, reported a rise in turnover at 57 per cent higher than those who opted for overdraft facilities (36 per cent) and personal credit cards (32 per cent).
When questioned about their needs for additional funding, the survey found, respondents stated that cash flow management and an inability to access funding were their primary concerns over the next six months. Generating new business was also identified as a key concern.
“The latest findings from our survey convey an alarming picture that businesses are increasingly taking a short-term view, often as this is considered to be the easy option, when it comes to financing their business,” Evette Orams, Managing Director of Hilton-Baird Financial Services, said in a release.
“In our experience it is vital for businesses to explore all the available options, in order to find the right solution for their current needs, without compromising the longer term future of their business.”
Given the current economic climate where the UK’s mid-sized businesses are still struggling to find finance for growth, invoice finance is deemed by some to be filling the funding gap. The latest quarterly figures from the Asset Based Finance Association revealed a 6 per cent increase in turnover for companies using invoice finance in the first quarter of the year. This compares to a rather discouraging picture in Q1 2011, with total client sales now at £59.2bn up from £55.6bn.
By releasing cash against a company’s sales ledger, invoice finance bridges the gap between an invoice being raised on credit terms and the date the payment is received, which is usually significantly beyond the actual terms of the credit, with late payments being a significant problem.
What is your experience with invoice finance? Would you choose it over a 'quick-fix'? Share your thoughts in the comments and on Twitter.