The scarcity of credit has prompted more UK firms to turn back to trade receivables as a method of raising finance.
That is the verdict of working capital solutions provider Demica, which quizzed 1,500 firms with more than 50 employees in the UK, France and Germany.
Nearly a third of UK respondents (31 per cent) reported that they had already raised finance against the security of their trade receivables. That figure is set to grow substantially over the coming 12-18 months, with just under a half across the three countries saying they planned to increase their levels of finance raised against the security of trade receivables.
A significant number of firms also reported having no other choice but to offer asset categories such as trade receivables if they were to convince banks to extend lines of credit.
Demica’s research follows forecasts from the European Securitisation Forum that overall securitisation issuance is to fall to €272bn (£247bn) in 2008 – the lowest level since 2004. The decline is thought to be a direct result of problems caused by low-quality assets, Demica said, with solid assets such as trade receivables not experiencing the same negative impact.
Demica chief executive Phillip Kerle said that the scarcity of traditional credit had become a “real problem” over the last two years.
“If European firms are to raise finance successfully in the future, the focus will have to be taken off liquid assets,” he said. “Trade receivables are leading the way as invoice debt is seen to be a high-quality security and therefore has the ability to improve access to credit significantly.
“Astute firms are finding ways around the current liquidity crisis by expanding the level of finance raised on the security of their trade receivables. These lines of finance have the additional benefit of being less complex than other transactions and although, to a certain extent, they remain complicated, they are relatively easy to monitor and therefore incur less risk.”
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