![]() ![]() ![]() Their business needs a lot of work to get back to its former glory. They’ve just lost a couple of years of normal business to the pandemic, and many have had to take on huge new debts through government lending schemes. Many established businesses have got to where they are thanks to 20 or more years of hard work by their owners. This had huge consequences for the characteristics of the economy, which didn’t open up to new enterprises as fast as it could have through creative destruction.īut I suspect we are much less likely to see zombies in the Covid recovery. But the zombies couldn’t invest enough to grow. They were weighed down by debt, but nobody wanted to tip them over the edge and recognise the bad debts, and neither did governments who were owed taxes. Secondly, the Global Financial Crisis was notable for how few company insolvencies there were. Invoice finance typically sees the green shoots before other types of finance. And then on the other side of the recession, businesses ramp up their activity and invoice finance picks up as a result. It’s hit faster than most lending products as businesses reduce trade with each other, so fewer invoices are raised. Consequence 1: First in, first outįor starters, in every recession, invoice finance is first in, first out. Yet the consequences aren’t quite the same. So the parallels are there with the Global Financial Crisis – a huge dip in the economy, followed by aftershocks for years to come. I suspect the banks’ operations will be overwhelmed with the workload. The number of loans they made was orders of magnitude greater than they’ve previously handled. They were the only distribution channel large enough to distribute the government loans that supported many SMEs during Covid disruption. Banks are heroesĪnd now we have a crisis of a different kind with Covid, and this time the big banks have been the heroes. Huge numbers of SMEs still don’t have the cashflow buffer they need. (The first iPhone was launched just before the Financial Crisis hit – and technological advances since then have been massive.) Sometimes it seems as if all that’s changed is that the invoice finance Business Development Managers are driving to client meetings in Audis instead of BMWs. Nearly 15 years later, invoice finance products have changed little and customer volumes have flatlined, despite all the advances in technology since then. Instead they took out short-term loans at high interest rates, which were often not the best option for them. SMEs found they couldn’t just swap an overdraft for an invoice finance facility. It didn’t work out like that, because the product was harder to apply for and use. So the loss of overdrafts should have been a great opportunity for invoice finance to step in as the financial buffer for SMEs. In retail, shops must stock up for Christmas before they sell. For example, between February and Easter in the UK, most hotels are burning through money – they have fixed costs and few guests. This mattered because overdrafts are there for the cashflow ups and downs of a business. In the UK we were seeing a loss of SME overdrafts of £5m a day over a number of years – a halving. ![]() This meant a huge reduction in the availability of finance for SMEs. The Basel II bank capital regulations had proved hopelessly inadequate, and Basel III was devised to increase capital requirements and liquidity.īasel III made it less attractive to offer overdrafts to small and medium enterprises (SMEs). If we go back to the aftermath of the Global Financial Crisis of 2007-8, governments wanted to make sure banks couldn’t put the economy in the same situation again. Why should invoice finance work as a product – and why are we entering a golden age? Conrad Ford, Chief Product Officer at Allica Bank, explains how it looks from a UK perspective. ![]()
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