Government in discussions over company invoices

Government in discussions over company invoices
By Kiran Stacey
Published: January 20 2009 02:00 | Last updated: January 20 2009 02:00
The government is in early stage talks about the possibility of buying up companies' invoices in order to provide ready cash flow, the Financial Times has learnt.

The Asset Based Finance Association (ABFA) has been in talks with officials from the business department about the possibility that the government could supply invoice discounting, according to people familiar with the situation.

Invoice discounting involves supplying credit in return for control over a company's ledger - in effect buying the invoice at a discount and then collecting the money from debtors themselves. The process can cost companies up to 2 per cent of their invoice value but can provide them with cash upfront instead of waiting several months before bills are paid.

The discussions are at an informal stage, and this remains one of many options being considered to boost the supply of credit to small- and medium-sized businesses. Rather than supplying invoice discounting itself, the government may provide finance or guarantees for large banks, the traditional providers of the product.

This form of financing has proved increasingly popular as banks move customers away from normal overdraft arrangements and towards more secure forms of lending. In the four months to September 2008, all forms of asset-based lending, including invoice discounting, rose 15 per cent from the same period in 2007.

While many banks are maintaining or increasing the level of invoice discounting that they are offering, it is believed the ABFA will make the case for government to get involved to help match supply to the rapidly rising demand.

The government has agreed to operate a similar scheme for credit insurance, which insures suppliers against the risk of their purchasers going bust. Under the terms of that scheme, it will match any policy provided by credit insurance, in effect doubling the amount of cover available to UK companies.

Invoice financing has been seen as an alternative to credit insurance and has come to the fore as insurers have reduced their exposure to the UK market ahead of rising numbers of corporate failures.

Any scheme involving invoice discounting is likely to supplement the £21bn package for small companies announced last week.

Neither the department for business nor the ABFA would comment on the talks.

Copyright The Financial Times Limited 2009