Cash strapped firms go for invoice discounting

The number of small and medium enterprises seeking to discount their invoices for instant cash is increasing, says an international expert.

California-based Interface Financial Group (IFG) President and Chief Executive David Banfield said although recession had somewhat eased in many parts of the world, its after-effects continued to haunt businesses.

“Small and medium companies are vulnerable to cash flow problems and with banks still showing no appetite for advancing credit to such organisations, the situation worsened in 2009,” he said.

The crisis is of course good news for companies like Interface, since they can be more selective in accepting invoices for discounting than ever before.

“Our objective is not to be unduly tough but examine more closely the quality of invoices being offered and the risk involved in discounting them.

“As a company that operates its own finances, we have to ensure that there are no failures and that we do not spend unnecessary time and money in chasing unpaid invoices,” Mr Banfield said.

Interface operates on referrals from banks and financial institutions and Mr Banfield said such referrals had “escalated dramatically” over the past year.

He said borrowing had no longer become an easy option and the situation had worsened with a number of county banks and financial institutions collapsing in North America and Europe.

“Besides, most small firms operating on overdrafts and advances against their mortgaged properties find it almost impossible to raise additional funds through their banks.

“Due diligence takes longer; while we are keen to help small and medium enterprises, we have to ensure that our money is safe.

“As long as they operate a profitable business with a proper accounting system, they can consider invoice discounting as an important and immediate source of finance,” he said.

Interface New Zealand master franchisee Chris Reid said the company’s New Zealand operations registered an impressive growth of 10% in 2009.

“People come to us after exhausting all options to raise short-term money and we are always willing to help, provided they meet our criteria,” he said.

He cited the example of a Palmerston North based seed importer who needed working capital to get through the busy early spring period.

“His business had grown rapidly but he faced an unforeseen crisis. His banker was not interested in advancing any more working capital as the “bust season” approached.

“But the importer had the foresight to anticipate the need for short term working capital to cope with the ensuing busy season and the inherent costs. 

“We were able to get them on board with our invoice discounting system and provide about $26, 000,” he said.

Mr Reid said it was not uncommon even for well-run companies to be strapped of cash during busy periods.

Interface has provided them with a pool of available working capital which they can access on an as needed basis.

A Wellington based importer of cleaning equipment needed short term business finance to take advantage of high demand and an opportunity to import at a good price. His bank was not willing to extend him facilities but recommended Interface.

“Today he is a happy man, concentrating on growing his business,” Mr Reid said.

Mr Banfield said with 150 active offices located at almost all major centres of the world, Interface was well positioned to serve not only locally established businesses but also importers, exporters and joint venture operations.

“The expertise that we have gained over the years enables us to help clients improve their cash flow and generate some short term working capital for their existing debtors’ ledgers. We also work closely with their bankers to ensure that they stay within their operating limits, while they concentrate on their business.”

He said the demand for invoice discounting has been growing on both sides of the Tasman, encouraged by which Interface has appointed two Area Developers, one each in Sydney and Perth.

He said Pat Everest (formerly Business Development Manager at Scottish Pacific) joined the New Zealand Company last year, bringing with him several years of experience in factoring, franchising and business banking.

“We have taken on board two new franchisees in the South Island to cover the growing market in Christchurch and other areas.

“We see 2010 as a year of challenges in terms of both helping as many companies as possible who are in need of short-term capital and meeting our own risk assessment standards,” Mr Banfield said.