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SMEs BEING TARGETED BY BANKS’ INVOICE DISCOUNTING CAMPAIGN, SAYS CLIFTON ASSET MANAGEMENT

Small businesses believe the banks have launched a target-driven campaign to persuade them to borrow money against their sales invoices, according to a new survey.

The research says that almost 90 per cent of targeted firms believe the loan offers are driven by the banks‘ profit targets rather than their own needs.

The findings are revealed in the latest quarterly survey by Clifton Asset Management (CAM), which provides specialist strategic and financial advice to SMEs.

Under the loan facilities, known as invoice discounting, banks typically advance 80 per cent of the value of each sales invoice when issued by a client, paying the balance – less a fee – when the trade debtor settles up.

Around a quarter of the businesses surveyed by CAM said their bank had suggested using an invoice discounting facility in the past six months. Of that number the vast majority - 88 per cent - said they felt this was driven simply by the bank trying to meet targets, regardless of whether the facility was appropriate for their needs.

Anthony Carty, director at CAM, said banks were promoting invoice finance aggressively in an attempt to improve their security and to raise margins, as well as being a means of whittling down customers‘ overdrafts.

“With a conventional overdraft you will be paying 3 to 4 percentage points over base rates,” he said.

“But with invoice financing you are looking at 10-15 per cent a year when you include the totality of charges, and the arrangement can then be difficult to get out of.

“There is clearly a widespread perception among business owners that the banks are promoting invoice discounting purely in their own interests. Against that however, there is no doubt that these arrangements do suit other businesses, for example in terms of helping to improving cash flow.”

 

ENDS                                     20th August 2010

 

For further information please contact Neil Fraser neil@sturgessvandamme.co.uk or telephone 01275 390 552