Turning Biggest Asset into Cash; Special Report: FLEXIBLE FINANCE Regional Director Chris Jones and Director Damon Walford, of RBS Invoice Finance, Explain the Increased Use of Invoice Finance

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Byline: Chris Jones Damon Walford

Trade debtors are often the largest assets on a company's balance sheet.

Invoice finance, in the form of invoice discounting (sales linked finance), unlocks their value and provides immediate working capital to facilitate expansion.

It is of particular relevance when it comes to corporate finance transactions.

So why the increase in the use of invoice finance?

The flexibility it offers for one. Employing invoice finance allows a business to immediately realise the cash benefit of its sales and, given that the level of finance available is directly proportional to sales, funding should automatically increase as a business expands.

Link to this the widening scale of how invoice finance can be used in the arena of asset-based lending and you can begin to see why it becomes increasingly more attractive to finance directors.

The market has witnessed a rapid development in the use of finance secured against assets such as stock and plant and machinery alongside invoice finance agreements.

Although we continue to fund a number of customers on a stand-alone invoice finance basis, we are increasingly being asked to look at providing facilities which are secured against the wider asset base of a company.

The flexibility that asset-baed lending, or ABL, provides in comparison to other more traditional debt formulas means that we can be more creative in our approach to structuring facilities.

In a competitive market, this ability to be flexible, take a holistic approach and match particular requirements, can make a real difference to a management team and assist with the implementation of their business strategies.

The growth in demand for ABL solutions has led to significant investment in our business to deliver for our expanding customer base.

Asset-based lenders have to consider more challenging debt structures including issues such as contractual debtors, high level of export sales, multi jurisdictional deals and so on.

To deliver the right customer proposition, we must have highly experienced relationship managers with small customer portfolios. This enables the relationship manager to exhibit a high-touch management style while fully immersed in the dynamics of their customers' businesses.

The level of activity in the Midlands market has impressed us this year.

Some of the transactions we have completed from Birmingham illustrate the different ways in which invoice finance facilities are used.

These include, a pounds 20 million facility to refinance and extend working capital facilities for a business in the paper and board sector to support the management's growth strategy, and a pounds 9 million facility to support two consecutive acquisitions in the packaging sector. …