News

June 01, 2012

Pressure on UK exporters prompts rise in invoice financing

UK businesses are increasingly using invoice financing to fund their exports, according to commercial law firm EMW.

It reveals that export invoice financing rose by 12% in 2011 compared with 2010. And between 2009 and 2011 it rose by 45%, from £10.6 billion to £15.4 billion — more than double the rise in domestic invoice financing, according to EMW.

Invoice financing, also known as factoring, allows businesses to borrow against unpaid invoices providing a short-term solution to cashflow problems. It allows businesses to recoup the value of invoices faster, often within 24 hours of delivery of goods, as opposed to the usual 30-90 day payment terms.

EMW principal, Jodi Tierney, said: “Invoice financing can create some headroom for exporters, particularly in the event that orders fall or the importer does not pay on time. If you have a customer based in Portugal, Italy, Greece or Spain then you might well be worried about them delaying payment of your invoices.

“Recovering money from debtors abroad can be very difficult, particularly for SMEs,” added Tierney. “If a customer sits on invoices, there is often very little a business can do short of taking legal action. If your invoices are funded you will also have the assistance of an experienced invoice financier behind you to help with the collection process.”

The European Late Payment Directive, published in February 2011, suggests that invoices should be paid within 30 days, although there will be an option to increase this to a maximum 60-day period. However, the directive is not expected to be implemented until March 2013.

SMEs are increasingly using invoice financing to fund their businesses because of the lack of traditional lending from banks to small firms. The Eurozone crisis is also a factor behind the rise, as some exporters are waiting longer for payments from struggling European customers.

Jodi Tierney added, “Late payment has become a serious threat to businesses in both the UK and abroad, meaning many businesses are using invoice financing just to keep afloat. This, coupled with a shortage of traditional lending and a rumbling crisis in the Eurozone is putting increasing pressure on exporters.”