Stringent capital controls introduced following the financial crisis have forced banks to tidy up their balance sheetsWith SME access to traditional bank overdrafts falling dramatically, alternative financiers are providing a new funding avenue that can effectively support the needs of the recruiter. Steven Renwick, CEO, Satago.
The financial landscape has changed considerably in recent years. Stringent capital controls introduced following the financial crisis have forced banks to tidy up their balance sheets and reassess their lending strategies in order to minimise risk. And in turn, in an industry characterised by unpredictable cash flows, the UK’s recruitment agencies have been among the primary casualties, with the value of the sector’s bank overdrafts falling by over a third – from £313 million to £196 million – from 2010 to 2015.
Coupled with the perennial challenge of late paying clients, this loss in funding access is a huge concern for many recruitment firms. Indeed, while SMEs are, on the whole, plagued by overdue invoices, it is an issue that affects the recruitment sector in particular. Recruitment companies typically wait around 56 days – more than twice as long as the UK average of 21 days – to receive payments, and borrow more than any other business due to overdue invoices. With the sector owed a total of £6 billion in late payments collectively, the overdraft’s demise could have a devastating impact on many businesses.
Life after the overdraft
Yet there is light at the end of the tunnel. Alternative financiers have been stepping in, and have so far provided a fresh stream of finance for SMEs totalling £76 billion – a value equivalent to 46% of bank funding via traditional loans and overdrafts.
Certainly, new avenues of funding such as selective invoice finance, can be notably beneficial for companies struggling with late payees, and this is becoming a dependable funding substitute to the waning overdraft. The financing method, which allows immediate access to cash by borrowing against cash tied-up in individual unpaid invoices (as opposed to the entire ledger) has been particularly effective in addressing the specific requirements of the recruitment industry.
Indeed, with a business model that often requires rapid expansion to succeed, invoice financing can offer valuable flexibility, as funding access can grow in tandem with the agency’s growing billing figures. What’s more, not only are new market entrants plugging the financial gap left by banks’ retrenchment, many are also leveraging financial technology or “fintech” capabilities to enhance their offerings and help support businesses.
For example, it is possible to conduct real-time risk analysis during funding applications. As a result, agencies can benefit from near-instant funding approval, meaning finance applications need only be made when it is entirely necessary, unlike traditional loans or arranging increased overdraft facilities. While the banking landscape appears increasingly risk-averse towards SMEs, agencies can remain confident that attractive alternative funding options are readily available. And equipped with support from technological solutions that plug the funding gap, agencies can feel assured that they are positioned with the support they need to help their business flourish.
Satago is an all-in-one online finance and cash-flow platform offering finance and receivables management to microbusinesses and small- and medium-sized enterprises (SMEs). The fintech firm serves a large but under-served business segment in the UK, overcoming the issue of late payments by converting outstanding invoices into cash, and using innovative technology to give small businesses the same level of credit control as their larger counterparts. (www.satago.com)
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