The value of small businesses’ unsold inventory has hit £50.9bn – rising over £2bn in a year, according to new research from the Asset Based Finance Association (ABFA).
The body representing the UK and Republic of Ireland’s asset based finance industry said the number was up four per cent from the 2014 value of £48.8bn.
It said the growth had accelerated due to the economy not expanding as rapidly as some had hoped following the recession. While small and medium-sized firms will want to reduce any excess inventory, the ABFA said businesses facing problems with large amounts of unsold stock can ensure it doesn’t become too much of a burden on resources by using it to secure an innovation form of finance.
A recent study from ABFA found there had been an increase of 67 per cent of firms using excess inventory to access funding in the last year – from £530m to £870m.
While that form of asset based finance is predominantly used by medium-sized firms, the ABFA feels there is “considerable scope” for small businesses to increase use of this funding source too.
Jeff Longhurst, chief executive of the ABFA, said: “Many UK SMEs have found themselves sitting on large amounts of unsold stock after the recession – but businesses can still extract a lot of value from this inventory by using it as collateral and therefore lower their cost of borrowing.”
Longhurst said that while an unexpectedly large inventory can prove to be a big drain on cash flow, “more businesses facing this problem need to be aware that it can also unlock access to finance that may previously have been out of reach”.
“Some SMEs have expanded capacity too readily after the recession and overestimated demand from customers. This has led to the rising value of inventory. In this way they can reap the rewards of a fast-growing form of alternative finance.”
There are two main types of asset based finance – invoice finance (which also includes factoring and invoice discounting) where businesses can raise cash against unpaid invoices, enabling them to operate without having to wait for clients to settle accounts. At the moment, this is the most popular form of asset based finance. If necessary, providers can also take on the responsibility for the settlement of the invoice for an administrative fee.
Then there is asset based lending – a mix of funding including revolving and amortising structures against the whole range of business assets. Usually advances are available against debtors, stock, property, plant and machinery, but can also be arranged against intangible assets such as brand and forward income streams.
Jeff Longhurst said: “Asset based finance specialists have the expertise to calculate exactly how much an asset is worth and can confidently provide finance secured against such an asset on generous terms for the business.”
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