BUSINESS FIRST INNER 39-82:Layout 1 9/6/08 16:54 Page 53
KNOWLEDGE 53
EVERY CREDIT
accurate up to date information so that a business can respond
quickly. By carrying out this exercise, companies get a better
understanding of how cash flows through their business. This needs
CRUNCH HAS
to be supported by controls that ensure people take responsibility
for cash flow and understand their roles. Cash isn’t only the
responsibility of the finance department – controls and incentives
need to be implanted for use in driving behaviours across the
A SILVER
business. It isn’t unusual for a shift of focus of this nature to unlock
trapped cash. We have seen the release of cash in businesses
through a reduction of working capital by more than 20 per cent.
LINING
In the current financial climate, many companies, particularly
among the UK’s Middle Market, could now be facing the prospect
of their existing funder developing “lender fatigue” or having
constraints placed on their banking facilities.
It appears that Britain’s businesses are not letting talk This potential crisis has however created an excellent opportunity
about a recession dampen their confidence.
for companies to explore alternative funding options
According to a recent KPMG survey 60 per cent of
as well as gearing up against other asset classes in
companies surveyed believe that prospects
their businesses.
for their company over the next 12 months
Where the traditional banks have suppressed
their appetite for overdraft lending and
were good, with almost two thirds (63%) not
increased the costs of banking facilities,
expecting the credit crunch to result in tighter
alternative sources of finance are now
borrowing conditions for their business. But is this a seen as a viable option as the costs of
realistic view? Neil Jones examines the evidence.
these facilities are comparable, whilst, more
importantly, their credit appetite remains strong.
The current turmoil in the credit market has had an impact on some
of the largest providers of cash – the banks. They have been forced
The asset based lending market is just one
into a position of being increasingly 'credit aware' in their assessment example of the expanding demand for
of risk, which has led to a tightening of the credit market and has alternative forms of finance. It has developed
made raising cash more difficult and more expensive for the rapidly over the past five years and now lends
average company. in excess of £15 billion to businesses in the UK.
It has widened its appeal to businesses by
But where one door closes… providing not only invoice finance, but also
funding against inventory, plant and machinery
With banks tightening traditional lending routes, now is the best and property. In addition, the asset based
time to review your company’s attitude towards cash lenders can add cash flow facilities allied to
management, and to research some of the
assets to provide the full range of finance
alternative funding routes that could be on offer
requirements to a business. This can remove
to you.
the constraints associated with traditional
banking facilities and give more control of
Historically, businesses were rewarded for
cash to a business.
increasing profits, even if those increased
profits consumed cash. However business
As many companies will only have had
investors get their return by being paid
experience of dealing directly with their banks, this is the time to call
cash.
in the advisors who will have an in depth knowledge of the best
finance options available. They will be able to give you advice on
Changing from a profit focus to a cash
asset based lenders, leasing opportunities and specialist industry
culture can take time, but with investors
sector lenders as well as being able to give you an idea of their
and banks applying pressure to
appetite for specific transactions and an outline of the cost
generate more cash internally, business
implications of different types of finance.
owners and FDs have to start thinking
about how to ingrain a cash culture
Despite the current UK economic conditions, there are still many
within the organisation.
areas that businesses can actually do something about. Prudent
financial management, including being receptive to new funding
There are a number of key areas that
channels and a strong focus on cash management issues will help
need to be addressed to manage
businesses to discover the silver lining to the credit crunch.
cash more effectively. The first step is
improving visibility and control by adopting
Source: Neil Jones, senior manager with KPMG’s New Money
robust ‘rolling’ cash forecasts. This will provide
team. neil.jones@kpmg.co.uk
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