More SMBs are looking to secure their cashflow and funding thanks to the tightening credit market, with a report finding a staggering surge in credit insurance claims during May.
The National Credit Insurance Brokers report found claims were 50 percent higher than average compared to the same period from 2004 to 2011, and more than two and a half times the average for the month of May compared with pre-GFC records between 2004-2007.
Oxford Funding head of debtor finance Rob Lamers said the findings come after relatively sedate April figures, indicating some big events in the economy have started to have an effect.
The engineering sector was the hardest hit with claims worth more than $2 million made, while other industries including electrical ($1.7 million), building/hardware (over $1.4 million), ‘other’ steel (almost $1.3 million) and manufacturing (more than $1 million) also had claims over a million dollars made against them.
According to Lamers, recent business collapses including the Hastie Group, St Hilliers Construction, Reed Group and Retravision, could lead to a number of suppliers in those industries looking to secure funding.
The tightening credit market could also have played a role in the uptake of debtor finance products, with stagnant property prices also making it difficult for businesses to attain more credit.
Lamers also states that because debtor finance allows businesses to use the strength of their sales to secure funds, it ensures they can use their debtor ledger to support growth in a sustainable way and avoid over-leveraging already exhausted assets such as property, or risk rejection from their lending institution when they request a bigger overdraft.
“The reason we’ve seen an upswing in businesses employing debtor finance solutions is that this form of finance, like invoice discounting and factoring, enables them to secure their cash flow and provide those funds,” he added.
Figures provided by the Institute for Factors and Discounters of Australia and New Zealand from the March 2012 quarter show that the industry provided $14.7 billion of receivables finance to businesses in three months, up 3.2 percent compared with the same period last year.
Overall, the industry provided $61.8 billion worth of receivables finance to businesses in the 12 months to March 2012, a climb of 3.8 percent compared with the 12-month period to March 2011.